Insurance broker brands new pre-pack rules 'ineffectual'

Four in five UK suppliers may have to write off unpaid debt due to "ineffectual" new rules for pre-pack insolvency arrangements, a leading insurance broker has said.

Aon is calling for a change in government legislation to give unpaid suppliers the opportunity to seek recourse before the pre-pack deal is done.

Pre-packs deals involve a buyer being lined up before an insolvency technically occurs and without creditor agreement.

In January, new Statement of Insolvency Practice 16 (SIP 16) rules were launched to promote transparency by requiring administrators to divulge full details to all creditors.

However, Aon has said details were unlikely to be disclosed before the insolvency has taken place.

James Bowker, director at Aon Trade Credit, said: "The new insolvency rules don't go far enough and legislation must be reviewed to support the UK supplier."

Aon is calling for a review of the insolvency legislation, which includes advising the insolvency service of areas of concern and working with credit insurers and insolvency practitioners.

Bowker said the estimated 20% of UK companies with credit insurance, which pays out in the event of bad debt from insolvency, would be able to claim and recoup losses from pre-pack arrangements.

He said that going forward, credit insurers will scrutinise pre-pack arrangements closely and could be reluctant to cover businesses that have the same management as the old company.

Aon's comments come amid a growing debate of the process of pre-pack administration deals.

On Monday, it emerged that a committee of MPs is set to grill the insolvency service on whether changes to the legislation were required.