Government proposals for a three day notice period before pre-packaged sales of insolvent companies can go ahead could mean unsecured creditors lose out as more businesses go into liquidation, according to Sheffield insolvency specialist Gareth Self.
Pre-Packs, as the deals are known, have come in for criticism because some creditors feel aggrieved at being presented with a fait acompli sale of businesses that owe them money which often puts control back into the hands of original owners. The Government is proposing that when a business is sold to connected parties creditors should receive three days’ notice of the deal.
However, Mr Self, a member of the Yorkshire committee of the insolvency professionals’ trade body R3, believes that will jeopardise corporate rescues.
“A Pre-Pack is chosen due to the speed of the procedure which helps preserve the value of the business,” said Mr Self.
“Three days is a long time in business and if unable to trade in that period, the business is at risk of losing key staff and customers.
“When faced with this option, directors may simply decide that liquidation is a better route and this would reduce returns to both secured and unsecured creditors and result in considerably fewer jobs being saved than under a Pre-Pack.”