David Prosser: Let's get pre-pack reforms right

 

Outlook The Government's decision to delay reforms to the rules on pre-pack administrations is welcome. The arrangements, through which indebted companies go into administration but emerge almost instantly with much-reduced debts and a new owner, have had a bad press. And there have been abuses of the rules, which have left creditors, often vulnerable small business suppliers, out of pocket and with no recourse to complaint.

But while the excesses of the pre-pack system must be curbed, consider the alternative. In many cases, these companies would go into liquidation and their creditors would be no better off for that (and nor would their employees).

The key is to underline the duty of the insolvency practitioner – pre-packs can't be arranged without one – to safeguard the interests of creditors as a whole. Some experts have warned that the Government's proposed reforms, which would have seen creditors given more notice of pre-packs, would not necessarily have done that, and would have jeopardised the recovery chances of struggling companies.

It is worth taking the time to get this right, especially during a phase of the economic cycle when so many companies are struggling.

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