ABI action on pre-packs

Large companies should be allowed to use Company Voluntary Arrangements to avoid insolvency, the Association of British Insurers (ABI) has said in a letter to the Insolvency Service, The Independent reports.

The ABI sees CVAs as an alternative to pre-pack administrations that allow companies to quickly enter into administration, wipe out debts, dump creditors and be sold on, often to the company's original management.

Nick Starling, the director of general insurance and health at the ABI, said: "We believe that the reputation of the insolvency industry has been damaged by the practice of pre-packaged administrations and it is likely that future changes to the insolvency legislation will be judged against this background.

“The ABI supports effective measures to ensure viable businesses remain afloat, and CVAs are a good way of achieving this for many struggling companies.

"Allowing companies to abuse the pre-pack system has damaged the reputation of the insolvency industry. It is essential that any new regime for CVAs be appropriately supervised and the process be both transparent and fair to all creditors."

The ABI also called for a court ban on creditor action of up to 90 days during a CVA. "We believe that the protection from creditors through a moratorium may reduce the number of pre-pack administrations. The extent of this will largely depend on the willingness of banks to fund CVAs."