The British Property Federation (BPF) has criticised the government for scrapping proposed new legislation that would have tightened the rules on so-called pre-pack administrations.

In response to the u-turn, the BPF has called for immediate action to increase protection for the creditors of businesses which use pre-packs, which have been subject to abuse and have left creditors out of pocket.

The rejected package of reforms, first mooted 18 months ago by Business Innovation and Skills minister Ed Davey, required insolvency practitioners to notify creditors in advance of a pre-pack and allow them three days to scrutinize the proposals to ensure they represent the best deal for creditors, and to give them time to object.

The BPF had argued that three days would be insufficient and called on ministers to extend this notice period, but instead it has been scrapped completely as Ed Davey announced recently that the reform would not go ahead due to an long-standing Government moratorium on new regulations affecting ‘micro-businesses’, despite the fact that this would have been obvious when consultation started 18 months ago.

A so-called ‘pre-pack’ is a fast-track administration that avoids a failing business being sold on the open market. An insolvency practitioner instead lines up an advance purchaser to take over the profitable parts of the business, with the company going into administration simultaneously. Most recently Bonmarche, Peacocks and Blacks Leisure were snapped up in this manner.

Pre-pack sales to connected parties – so-called ‘Phoenix Pre-packs’ – are often done at great speed and presented to creditors as a fait accompli, leaving them particularly open to abuse.

Ian Fletcher, director of policy at the BPF, said: “The Government has wasted 18 months reaching a conclusion that was obvious at the start of this process; that the policy being pursued would potentially breach the moratorium on regulations affecting micro-business.

“This decision leaves creditors as exposed to sharp practice as when this debate started 18 months ago. Whether by legislative or non-legislative means creditors now expect the Government to move swiftly to provide increased protection. The Government recognises there is an issue to be resolved, and having wasted so much time anything less than swift action would be deeply unsatisfactory.”