Under pre-pack administrations, insolvent organisations, also known as ‘phoenix’ companies, can escape debts by transferring assets to a new company that operates under the same directors and in a similar guise.
The research by commercial debt recovery company Daniels Silverman surveyed 350 small and medium sized enterprises (SMEs) and found that 80 per cent had written off debt as a result of company failure.
Some 57 per cent had written off up to £10,000, while 20 per cent of SMEs have lost between £10,000 and £25,000, and 23 per cent more than £25,000.
Gary Lee, partner at business restructuring specialist Begbies Traynor, has seen an increase in the number of pre-pack administrations but believes they are not always in the best interests of creditors.
‘Insolvency practitioners should explore all options available before concluding that a sale back to the existing directors represents the best outcome and it should be the result of a process of elimination of all other possible options rather than the default option of choice,’ he explains.
Carole Hughes, managing director of Daniels Silverman, has called for a change in the law to prevent abuse of the pre-pack administration law.