The government has announced an independent review of the controversial insolvency vehicle through which DWF recently acquired the collapsed Cobbetts while leaving creditors likely to recoup little or nothing of what they are owed.
The Department for Business, Innovation and Skills said the review into pre-pack administration would start in late spring.
The pre-pack allows for the sale of a business and its assets to be arranged prior to the onset of formal insolvency and comes into effect immediately.
National firm Cobbetts, which owed an estimated £41m, was bought in a pre-pack deal last month by DWF within a day of going into administration, saving more than 400 jobs but leaving unsecured creditors likely to recover just 2p in the pound.
In a report by administrator KPMG made under Statement of Insolvency Practice 16, it was revealed DWF said it was prepared to look at taking the whole of Cobbetts’ business, but only if given exclusivity – warning that it would withdraw its interest if the business was marketed to others.
In a statement released today, the government’s Insolvency Service said pre-packs can be a ‘highly effective process’ to ensure the best deal for creditors, preserve value and safeguard jobs.
The review will gather evidence on how pre-packs are working and whether further reform is needed.
The statement added: ‘The government has listened carefully to the concerns of creditors about pre-packs and that is why we already have measures in place to increase transparency and prevent abuse.
‘Strengthened measures are being introduced to improve the quality of information insolvency practitioners are required to provide on pre-pack deals and we are using targeted monitoring of outcomes to assess whether there is evidence of abuse.’
During 2011 (the latest year for which published figures are available), the Insolvency Service was notified of 723 pre-packs by insolvency practitioners.
This represents around 25% of all administrations during 2011, and is broadly in line with the proportion of pre-packs undertaken in previous years.