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More clarity in pre-pack administrations

New legislation aimed at making the pre-pack administration process more transparent has come into force.

Pre-pack deals, where a company is immediately bought out of administration by a pre-arranged buyer, often leave creditors angry and out of pocket.

However, from 1 January 2009, administrators must be more transparent about the sale process.

In particular they must reveal why a pre-pack was the best option, providing creditors with details of rival bidders, the price paid, and, crucially, any connections that the new directors had with the former company.

Detractors of pre-pack deals claim that best value for creditors is often not realised as administrators do not have the opportunity to test the market and search out the best offer.

Those in favour argue that it is often the only way to sell a business as a going concern and preserve the jobs of those working for the failed business.

The new laws are contained within the Statement of Insolvency Practice number 16 (SIP 16).

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