As we reported earlier this year, the government is looking into revising the insolvency regulations and practices in the UK. But at the moment, pre-pack administrations remain a common option for many distressed business and certain economic conditions could even see them become even more common.
Given how unpopular they can be with both competitors and those considering buying a business, news that pre-packs could be on the rise is unlikely to be welcomed.
A lack of patience on behalf of HM Revenue & Customs (HMRC) is at least partly responsible for the projected increase, with many companies that would previously have been eligible for the Time to Pay tax rescheduling scheme forced to enter into a pre-pack administration when times get difficult.
HMRC has reportedly upped its game considerably over recent years and has used its powers to claim nearly double the number of properties to meet unpaid company tax bills in the year to the end of March 2012 as it did in the previous 12-month period.
There are two main problems with pre-pack. The first is the fact that it often means that creditors simply see their debt written off, leaving investors out of profit and competitor businesses operating against a perceived unfair advantage. The second is the fact that the company is often passed onto an interested party that already has a connection with the distressed business and the open market doesn’t get a chance to make a bid.
Pre-pack clearly has some benefits to have survived this long and occasionally proves to be the only way to save a business that is fundamentally sound but that has acquired insurmountable debts. But despite its benefits, we’re looking forward to the government’s reassessment of the regulations on this issue. 
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