Insolvency Crackdown

New regulations may be good news for creditors

With retailers – from Woolworths to corner shops – falling victim to the economic downturn, small businesses struggling to survive, and the number of people going bust in 2009 expected to break all records since statistics were first compiled in 1960 – businesses and their creditors are facing a grim start to 2009.

Creditors may draw some comfort though from a crackdown on insolvency procedures that came into force on 1 January. Administrators must now disclose detailed information to creditors before and after they enter into a so-called ‘pre-pack (pre-packaged administration), whereby a company is bought out, almost immediately after going into administration, by new owners with reduced liabilities.

The information to be disclosed includes the source of the introduction to the purchaser and any connection with the directors, shareholders or secured creditors of the business.
This practice has been particularly prevalent in the retail sector and has courted a great deal of controversy. With so many retailers expected to hit the wall following the boom Christmas trading period, the timing of these changes is perhaps not surprising.