'An inquiry into controversial pre-pack administration deals has been launched following complaints of cosy deals and bankrupt companies dodging their liabilities, writes John Revill.
Last year unsecured creditors of LDV were left massively out of pocket when the Birmingham van maker went into administration with debts of £234 million.
All but £300,000 of the £19,563,363 received by the administrators was used to pay off Barclays Bank and Lloyds UDT.
The old company, LDV Limited, was put into administration on December 16 but was bought by American private equity firm Sun two hours later and renamed LDV Group.
R3 - the Association of Business Recovery Professionals - has commissioned Dr Sandra Frisby, Baker & McKenzie Lecturer in Company and Commercial Law at the University of Nottingham to carry out the investigation into the procedure.
A pre-pack is the sale of an insolvent business where all the arrangements of the sale are agreed and put in place before the company actually goes into a formal insolvency process.
The assets required by that purchaser will be agreed and a price for the business settled, invariably by reference to an independent valuation.
The company then goes into administration and the business and employees are transferred to the purchaser.
Critics have argued the process lacks transparency, with no guarantee that the interests of the creditors of the insolvent company have been properly taken into account.
Others have said it is the best way of getting value for a company that would otherwise evaporate very quickly once its insolvency becomes public knowledge.
Tony Supperstone, R3 president and consultant at BDO Stoy Hayward, said: "We are happy to be supporting Dr Frisby in this research as it will be very valuable to our members and the wider business community.
"We have got a totally open mind. We want to gather evidence so that we can say either they work and have been operated properly in the vast majority of cases, or there will have to be some regulation introduced if they are open to abuses.
"I look forward to the outcome of her initial report in spring 2007."
This is the first research conducted into pre-packs in the industry from the time the Enterprise Act 2002 came into force.
It will examine the way that pre-packs operate and the way affected parties are treated.
It will identify advantages and disadvantages, and the costs involved and upon whom they fall.
Dr Frisby said: "It is too early to say whether prepackaged deals have had any long-term success and further research is necessary to determine whether they provide a durable solution to financial distress or whether the administration process is abused."