Reforms to pre-packaged sales in insolvency (often referred to as pre-packs) have been put on hold, it was announced yesterday. In a written ministerial statement, delivered on 26th January , Ed Davey, the minister for the department for business innovation and skills, announced that planned changes to improve the transparency and confidence of pre-pack sales would not be implemented at this time.

During his statement, Davey acknowledged concerns regarding the improper use of pre-packaged sales in insolvency, commenting :’ I am concerned about the potential for sales to be effected at an undervalue, particularly in smaller-value asset sales, where unsecured creditors may receive less than they should.  I also believe that it is important to consider the effect of pre-pack sales on competitors in the market.’

In conclusion to the statement, however, Mr Davey said:
“Having taken account of all the issues, however, 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’.

To those who advise on Administrations, this ‘u turn’ by the government comes as no real surprise.  The proposals were ill conceived and impractical from the outset and were viewed more as a PR exercise to appease the public who have been mislead as to the true nature of pre-packs by the media.

The fact is that in the main, the current system works – many jobs are saved that would otherwise be lost.  Given the state of the economy, together with soaring unemployment, it seems to me that the Government should be looking at ways of stimulating the economy rather than pandering to the press to score political points.  Pre-packs are already highly regulated and have been since January 2009 through the Insolvency Service’s ‘SIP 16’ – Statement of Insolvency Practice 16.

If you’re interested in a more detailed review, please refer to my earlier blog on the delay to pre-pack reforms.