News In Focus
27 January 2012
Landlords' disappointment at pre-pack climbdown
Landlords' representatives have voiced dismay after the Government decided not to go ahead with proposed new legislation that would have tightened the rules on so-called "pre-pack" administrations.
In a pre-pack an insolvency practitioner lines up an advance purchaser to take over the profitable parts of the business, with the company going into administration simultaneously. Most recently Bonmarche, Peacocks and Blacks Leisure have been disposed of in this manner.
According to the British Property Federation, pre-pack sales to connected parties – so-called "Phoenix pre-packs" – are often done at great speed and presented to creditors as a fait accompli, leaving them particularly open to abuse.
In March 2011, Business Innovation and Skills Minister Ed Davey proposed a package of reforms that would have required insolvency practitioners to notify creditors in advance of a pre-pack and allow them three days to scrutinise the proposals to ensure they represent the best deal for creditors, and to give them time object if they wish.
The BPF argued that even this length of time was insufficient, but instead, Mr Davey announced yesterday that the reform would not go ahead due to an longstanding Government moratorium on new regulations affecting "micro-businesses".
Review
The minister said that his officials had discussed the merits and practical application of the proposals with a range of interested parties, but "Having taken account of all the issues, the Government is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-business which is an important plank of this Government’s deregulatory agenda.
"As much of the concern was related to small businesses, I do not consider that measures should be introduced just for businesses other than micro-businesses. It is for this reason that I am today announcing that the Government will not be seeking to introduce new legislative controls on pre-packs at this time."
He added: "I have asked my officials to now undertake an urgent review in conjunction with stakeholders of how the existing controls on pre-packs have been working and whether, in light of their experiences and the outcomes from the monitoring, more could be done within the existing regulatory framework to improve confidence and transparency."
In response to the U-turn, the BPF called for immediate action to increase protection for the creditors of businesses which use pre-packs.
Ian Fletcher, director of policy, said: “The Government has wasted 18 months reaching a conclusion that was obvious at the start of this process: that the policy being pursued would potentially breach the moratorium on regulations affecting micro-business.
“This decision leaves creditors as exposed to sharp practice as when this debate started 18 months ago. Whether by legislative or non-legislative means, creditors now expect the Government to move swiftly to provide increased protection. The Government recognises there is an issue to be resolved, and having wasted so much time anything less than swift action would be deeply unsatisfactory.”
- The Forum of Private Business has added its voice to the calls to the Government to think again, pointing out that while its latest "cost of compliance" survey shows small firms’ annual red tape bill has reached £16.8bn in total, recent late payment data suggests that the UK’s small businesses are owed more than £33bn in outstanding invoice payments. "This is one area where tighter legislation would protect more firms from ‘phoenix’ companies abusing the pre-pack insolvency process by starting again while failing to pay them,” said the Forum’s senior policy adviser Alex Jackman. “Late payment – or in this case non-payment – devastates firms’ ability to maintain any kind of healthy cash flow and threatens their very survival."