Administration advice for companies on the brink of insolvency must not come at the expense of the firm’s creditors, business minister Jenny Willott has warned.
Her comments follow the publication of a review by Teresa Graham CBE launched last summer, which has raised concerns about pre-pack administrations.
These are where the most profitable parts of a failing business are sold off to raise funds, before the remainder is allowed to enter into corporate insolvency proceedings.
But the concern is that this leaves less ‘in the pot’ for creditors to claim back funds they have put into the business.
Ms Willott says: “When these types of business sales are carried out properly, they allow the viable parts of the business to continue operating and jobs are saved.
“But it is also important for those who are owed money to know they are getting the best possible deal in the circumstances. Transparency is vital.”
Under the proposals made in the review, pre-pack administration advice is still permitted; however, any assets to be sold off would need to be correctly marketed, in order to maximise the proceeds of the sale.