Acquisitions of insolvent businesses in the Midlands almost trebled in 2009 as the recession hit the region harder than other areas.
Last year 81 companies were bought out of administration or other formal insolvency procedures compared to 29 in 2008, according to research into mergers and acquisitions by Experian Corpfin on behalf of insolvency trade body R3.
Acquisitions of distressed businesses accounted for 18 per cent of all corporate finance deals, compared to just three per cent during 2008.
Those figures are well above the national level where one in nine of all deals involved companies acquired out of administration or other formal insolvency procedures.
R3 midlands chairman James Martin, a partner at the Birmingham office of Begbies Traynor, said: “Acquisitions of insolvent businesses have risen significantly and continue to remain at high levels.
“Whilst pre-pack administrations may account for some of these deals, others will be acquisitions by canny buyers taking the opportunity to pick up bargains while values are low.
“Viewed in a positive light, each of these statistics represents a local business that is being given a second chance of survival.”
Recent examples of insolvent companies being bought out of administration include Diamonds & Pearls, a retail firm which collapsed earlier this month. The firm was sold out of administration at the beginning of February to Renaissance Jewellery for an undisclosed sum, keeping around 50 stores open.
Last year Birmingham-based Europackaging was bought out of administration in a prepack deal by its former owners, the Majid family.
The family concluded the deal almost three years after they sold the company to private equity house Mid-Ocean Partners.
But prepacks – which allow a company to go into administration, eliminate its debts and then be quickly sold on to a pre-arranged buyer – have been the subject of debate in the last few months.
Their supporters say they are an effective way of saving jobs and businesses but detractors point to suppliers being left high and dry in situations where people connected to the collapsed business are able to continue running the firm.
The Federation of Small Businesses (FSB) will debate the matter at its forthcoming conference.
John Walker, FSB’s UK policy chairman, said: “Many FSB members have been concerned about the effect of pre-packs on local businesses and by proxy, the local community.
“While saving jobs should remain a priority, questions about the effects of pre-packs on trade-credit insurance availability, inter-business trust and jobs in the wider economy need to be addressed.”
Christina Norton, who proposed the motion, said: “I believe that pre-packed administrations have become a rogues’ charter - allowing unscrupulous companies to dodge their responsibilities and renege on their debts causes real harm in the supply chain.
“I will argue hard that any future government must tackle this problem head on and restore trust to the marketplace.”