Desnos joins call for pre-pack clampdown

Euler Hermes chief executive Fabrice Desnos is calling on the government to press ahead with plans for tougher rules on “pre-pack” administrations.

Pre-packs allow directors to place a company in administration and then quickly sell it on. They were originally designed to allow struggling businesses to be sold quickly before further deterioration, to avoid the bulk of the workforce losing their jobs.

However, Desnos, along with trade credit insurers, believes many pre-packs are being used irresponsibly to dump unsecured creditors while selling on the best part of the business concerned.

There is particular concern over so-called “phoenix administrations”, which allow directors to buy back their company cheaply having discarded all liabilities.

Since the creditors tend to be suppliers that then have to make a claim with their trade credit insurance, pre-packs are often viewed as costly and unfair by the trade credit industry.

A consultation from the Department for Business, Innovation and Skills includes proposals on more information sharing between creditors and administrators, approval of the court or creditors, or both, for pre-pack business, and separating the roles of the insolvency practitioner to make sure all parties are fairly represented. The deadline for responses to the consultation is today.

Desnos said: “They are all very balanced. The proposals do not say that pre-packs have to stop completely, but are looking to address some of the most negative aspects. It is positive for all.

“We are supporting all the changes that are being consulted upon.”

On a positive note, latest figures reveal that insolvencies fell to their lowest point since the beginning of the year. Information provider Experian said there had been an 18% fall in the total number of business insolvencies in May, compared with April.

Experian said the greatest improvement had come from medium-sized businesses.