Government acts on 'pre-packs' but measures must go further, says REC

Filed under News update

Monday, 11 April 2011

Released on 11 April 2011

The Department for Business, Innovation & Skills (BIS) has recently announced measures to crack down on the abuse of 'pre-pack' arrangements for insolvent organisations. This is an issue the REC and its members raised in their face to face discussions with Employment Relations Minister Ed Davey last December.

Kevin Green, the REC's Chief Executive, says: 

“Pre-packs have a role in making it easier for insolvent companies to keep trading and so protect jobs. However there is increasing evidence that the system is being abused.  Repeated ‘phoenixing’ by organisations within recruitment has been regularly flagged by members as an issue for the industry. These were raised with the Minister when he visited the REC in December.   

“Unscrupulous directors emerge unscathed and repeatedly re-start their business while creditors and workers are not paid and this creates unfair competition for legitimate providers. This cannot be right and must not be allowed to continue.  The recent announcement confirms that the issue is now on the Government’s radar.” 
 
The measures announced recently by the Employment Relations Minister Ed Davey are aimed at allowing creditors to be warned that a pre-pack sale is imminent, meaning that they will be in a position to either stop the sale, or make an offer for the assets. While helpful, this will not in itself stop the determined offender, the REC contends.

The REC is calling for the Government to make the process more transparent with an automatic referral process to HMRC for directors involved in a second pre-pack.

Kevin Green added:

“As well as pushing for Government action, the REC is continuing to look at ways of ensuring that directors using more than one pre-pack arrangement are precluded from rejoining the REC. Measures have already been put in place and this is one of the issues being looked at as part of the REC’s ongoing compliance review.”

 

Contact: Ed Sexton

Phone: 020 7009 2192

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