The government has confirmed that it is to launch an independent review of pre-packaged insolvency sales in the first half of this year.
A pre-pack sale involves the business being marketed to a new buyer ahead of commencement of the proposed insolvency procedure. A sale is then put through immediately afterwards. On the plus side, this allows the value of the business to be optimised by minimising the length of time it is associated with a formal insolvency procedure, but it also narrows access to other potential buyers and has been the subject of much criticism in the past.
Our main problem with the system is that while it offers an effective way of safeguarding jobs and preserving value in a business, the vast majority of pre-pack cases tend to be sold out of insolvency to connected parties, such as managers or previous owners. This narrows the market for those looking to profit from distressed businesses and means that the company doesn't always end up in the hands of the best person for the job.
There have been reviews of the system in the past, but it appears that things might change further in light of this latest assessment. A statement from the Insolvency Service read: "The Government has listened carefully to the concerns of creditors about pre-packs and that is why we already have measures in place to increase transparency and prevent abuse."
It added that stronger measures are being introduced to "improve the quality of information" that insolvency practitioners provide on pre-packs, while the system will also be monitored for evidence of abuse. "The independent review … will enable further evidence to be assembled on how pre-packs are working in practice and whether further steps are needed," the service concluded.
Pre-packs are a popular method of insolvency, with the service receiving notification of 723 in 2011, accounting for around 25 per cent of all administrations over the course of the year. 
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