New laws looked at in 'pre-pack' shake-up

A report from the Insolvency Service found that voluntary industry rules introduced last January were not working as well as hoped, with non-compliance in 38 per cent of pre-packs completed in the last six months of 2009 alone.

So-called pre-pack administrations have come under increasing fire in recent years as they have become more prevalent amid the recession.

They involve the placing of a company into administration and then an almost immediate pre-arranged sale of the remaining assets to a buyer that has already been lined up – a process that is completed swiftly and without public disclosure. Their use has soared as businesses have come under pressure from the recession, with around a quarter, or 1,250, of all administrations in the year to March 31 expected to have resulted in a pre-pack.

Pre-packs are often used to help protect businesses from the reputational damage that can be caused by lengthy administrations and in turn help save jobs.

But there are fears they can be used by companies to cut loose of their liabilities to suppliers and creditors, particularly as company assets are often sold back to the original directors.