Controversial ‘prepack’ deals under which insolvent companies are sold back to their own management, free of debt, face a legal crackdown.
Prepack administrations and insolvencies have caused a great deal of controversy. Certainly, they leave a very bitter taste in the mouth for creditors for very understandable reasons. The main ones are :-
- Creditors may lose out
- The previous owners of the business are often directly or indirectly involved with starting again without debts
- Businesses that behave properly and run their businesses prudently face unfair competition from the new entity set up free of debt
Plans for legal changes are only at an early stage but are likely to involve some forewarning being required of the prepack solution to creditors and perhaps others. As things stand, creditors get even more infuriated by the fact they only find out what has happened i.e the prepack has happened, when there is little they can do about it practically.