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Insolvency rules set to change

New insolvency regulations to come into force next year are aiming to tackle controversial 'pre-pack' sales of businesses in administration.

The new statement of insolvency practice 16 in England and Wales, to come into effect on January 1, will make it compulsory for administrators to disclose detailed information to creditors before and after a pre-packaged administration.

The regulations will impact practices where a company in administration is bought back new owners without loss making stores and other liabilities, in a "pre pack" deal, which can leave creditors out of pocket.

Instances of this type of deal have become more common as the economic downturn kicks in.

In pre-packaged sales from 1 January, the administrator will have to disclose to creditors information including the source of their initial introduction and any connection between the purchaser and the directors, shareholders or secured creditors of the company.

Paul Stanley, the managing partner for the North-west at Begbies Traynor, the restructuring specialist, told the Independent: "The accusation that has been levelled at the [insolvency] profession is that sometimes procedures have been abused by lazy insolvency practitioners and therefore the regulators of insolvency practices have brought out these new guidelines."

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