A committee of MPs is set to grill Britain's top insolvency expert later this month over the use of so-called pre-packaged company administrations, amid concern the practice is being abused by ailing companies.
Stephen Speed, head of the Insolvency Service, the industry regulator, will face the Business and Enterprise Regulatory Reform Committee on 27 January, with Tory chairman Peter Luff promising that pre-packs will be "at the top of our agenda".
The revolving-door deals – where a buyer is lined up for a struggling business before it goes into administration – have hit the headlines lately with retailers Whittards, The Officers Club and USC – headed by Sir Tom Hunter – all using the facility. "There are growing concerns about the way some businessmen are using pre-packaged administrations as a way of getting out of their debts and other obligations," said Mr Luff.
"Given the current economic situation, it is timely to look at the Insolvency Service, both to assure ourselves of its efficiency and to give the public the opportunity to raise any concerns they may have about the underlying policy," he added.
Alan Duncan, the shadow Business Secretary, said: "The pain of recession is giving rise to some questionable practices whereby the owners of the business can shut up shop, shovel around the debt and then start again with old assets through a pre-packaged administration. This is morally and commercially unacceptable. The insolvency experts should be taking a much tougher line."
Calls for an overhaul of pre-packs have risen recently with angry creditors alleging that companies are using the practice as a way of avoiding their debts and obligations to suppliers.
One creditor hit by a recent pre-pack deal said: "In days past, the creditors would have got around the table with the company and the advisers and discussed things. We knew we might have to take some pain but at least we knew what was going on. Under the ludicrously adversarial pre-packs system, we have no idea what is happening until it's all over." Moves to boost pre-pack transparency, would have little effect, he added.
Administration experts said that while creditor anger was understandable, it was often misplaced. Alan Hudson, a partner at Ernst & Young, said: "Creditors are always going to feel aggrieved. There are plenty of safeguards around pre-packs. It's not a blunt instrument and we will see more of them."
But Michael Jervis, a partner at PricewaterhouseCoopers, said: "Pre-packs have a role to play but I accept that they can be open to abuse in the wrong hands. I certainly think lessons can be learned in terms of transparency and communication to creditors."