2009-05-06

By Editor, CIR

"Pre-packaged" administration rules risk damaging confidence in the UK's insolvency regime, according to some MPs.

They claim that the rules for bankruptcy deals are being abused and cite "phoenix" insolvencies, which are being used by the former directors of bankrupt companies to buy them back for a nominal £1, but which leave its creditors with nothing.

Last year saw a 67% increase in the number of directors banned by the Insolvency Service for improperly creating ''phoenix'' companies.

A report by the Business and Enterprise Committee is critical of the "pre-packaged" administration rules, enabling advisers to put a company into administration, wipe out its debts then immediately sell it on.

The committee chairman, Conservative MP Peter Luff, says: "We need a regime that stops the abuse of pre-pack administrations, protects creditors from unduly high fees from insolvency practitioners and in which those who try to cheat the system know that they will be found out."

According to MPs, unsecured creditors such as customers, suppliers and shareholders typically recover only 1% of their debts during a pre-pack administration, against 3% in a private business sale.

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