Government called to think again about protecting creditors


Government called to think again about protecting creditors

Simon Quicke

The government's decision to abandon plans to make pre-pack administrations harder to enter into have been criticised for failing to protect creditors and vulnerable suppliers.

The dreaded phoenix arrangement, where a firm goes bust but has already lined up a pre-pack administration, has been a feature of the channel for the past two years usually leaving creditors left with nothing.

The government had indicated it would take steps to make phoenix arrangements harder to set up but has now stepped back arguing that there is not much point adding more regulations and red tape for businesses.

The announcement was made by Employment Minister Edward Davey who opted to stick with the government's moratorium on new legislation rather than adding to it with action against pre-pack administrations.

Although usually against red tape the Forum of Private Business has expressed dismay over the decision arguing that combined with a generally bad state of affairs with late payments the government should think again and do more.

"Cutting red tape is hugely important but, against the backdrop of the Government's de-regulatory agenda this is one area where tighter legislation would protect more firms from 'phoenix' companies abusing the pre-pack insolvency process by starting again while failing to pay them," said the Forum's senior policy adviser Alex Jackman.

"Late payment - or in this case non-payment - devastates firms' ability to maintain any kind of healthy cash flow and threatens their very survival," he added.

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