A new Government report into pre-pack sales by administrators is to be welcomed, according to specialists at business and finance adviser Grant Thornton.
The Graham report's recommendations include the creation of a pool of experienced people who can be called upon for independent scrutiny of a deal where the purchaser is connected with a failing compan.
It also recommends the connected purchaser should complete a viability review for the new company to explain why it should be able to survive when the old company failed.
It calls for an encouragement of more comprehensive marketing of the business, greater explanation of steps taken during the marketing phase and that monitoring of the administrator's letter to the creditors of the failing company should move from the Insolvency Service to the recognised professional bodies which issue insolvency licences and carry out the regulation of insolvency practitioners.
Birmingham-based Raj Mittal, restructuring director at Grant Thornton, said: "There are sharply divided opinions on pre-pack sales.
"The sale of the business of a failing company is prepared, largely in secret, before the administrator is appointed and immediately gives effect to the sale to the purchaser.
"The sale and rescue of the business can be announced at the same time as the failure of the failing company.
"Some people question whether this is the rescue culture in action, saving jobs, giving the reshaped core of a business a fresh start and hopefully a viable future, while maximising asset values when realised for the benefit of creditors, or a cynical dumping of the creditors."
Mr Mittal added: "It will be interesting to see whether the first recommendation proves to be workable in practice as balancing transparency and the need to maximise value in a pre-pack can often be challenging.
"However, the concept that has been introduced here certainly provides a platform for further discussion and development.
"Pre-packs remain a useful tool in preserving value in distressed businesses and it is to be hoped the Graham report is a step forward for pre-packs as to quality and perception, particularly where the purchaser is connected to the failing company. However, we do not see the surrounding 'noise' ever being entirely silenced."
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