Pre-pack insolvency warning delivered by MPs

07/05/2009

The Insolvency Service is working well but there are areas in which improvement is needed, the business and entreprise committee has said.

According to the powerful MPs' group, the organisation - which helps out people and businesses who can no longer pay back their debts - is working in an "effective" and "efficient" way.

However, a report into the Service also suggested that there will be a "greater need" from consumers over the months to come - as more and more people face unsustainable debts in the recession.

So-called "pre-pack" administrations, a type of company insolvency where the business is sold on to another group before officially going bust, were earmarked as causing particular concern.

The MPs' group suggested that people to whom the business owes money are commonly "kept in the dark" about these negotiations.

"This causes particular outrage where the existing management buy back the business and continue to trade clear of the original debts ("Phoenix pre-packs")," the committee added.

"Pre-packs of this kind fuel understandable concerns about illegitimate, self-serving alliances between directors and insolvency practitioners."

Insolvency Service figures released last week revealed the severe toll the credit crunch and recession was taking on businesses and individuals.

In all, individual and company insolvencies were found by the organisation to have risen by 18.5 and 56 per cent over the last year respectively.

Tags; Housing Debt and Bills, Young Family Finances, Retirement Money Problems, Credit Card Lifestyle,

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