Insolvency reform to offer creditors more information

A crackdown on insolvency regulations will come into effect from 1 January that will make it harder for some practitioners to quickly push through controversial sales of retailers in administration.

The new statement of insolvency practice 16 in England and Wales will make it mandatory that administrators disclose detailed information to creditors before and after a pre-packaged administration. In a pre-pack, a company is typically put into administration and swiftly bought out of it by new owners with reduced liabilities, such as on unprofitable stores or retail stock.

While the new guidelines have been developed over the past year, the timing of their introduction is significant because large numbers of high-street retail chains are expected to hit the buffers over the next month.

Retailers, including the furniture chain ScS Upholstery and the value fashion retailer MK One, have gone through pre-pack administrations this year, although there is no suggestion that these deals did not adhere to best practice.

However, some deals – particularly those where existing management have bought a retailer out of administration – have left creditors, particularly in the property sector, out of pocket and seething with anger.

Paul Stanley, the managing partner for the North-west at Begbies Traynor, the restructuring specialist, said: "The accusation that has been levelled at the [insolvency] profession is that sometimes procedures have been abused by lazy insolvency practitioners and therefore the regulators of insolvency practices have brought out these new guidelines."

In all cases of a pre-packaged sale from 1 January, the administrator will have to disclose to creditors information including the source of their initial introduction and any connection between the purchaser and the directors, shareholders or secured creditors of the company.

Mike Jervis, a business recovery partner at PricewaterhouseCoopers, said "It codifies what has been best practice for a while".