As such, she will consider the long-term impact of pre-pack deals to see whether they encourage growth and employment, as well as providing the best value for creditors as a whole.
Graham will also assess the usefulness of the procedure in the context of business rescue generally, whether pre-packs place unsecured creditors at a disadvantage, and whether any practices associated with them are harmful.
Pre-packs – where negotiations for the sale of a company’s business and assets take place before an administration and the sale executed immediately on the appointment of an administrator – have grown in popularity as a means of business rescue.
Last year, there were 728 pre-pack deals, accounting for 29% of all administrations. They are regarded as an important way of ensuring that key employees and contracts are not lost, as well as preserving the value of the business and returns to creditors.
However, questions have been raised about the procedure, especially where the business and its assets are sold back to the company’s previous owners or a connected party, without an open market valuation, enabling them to leave behind unwanted debt.
Welcoming news of the review and Graham's appointment, Giles Frampton, vice president of insolvency trade body R3, said, “We recognise that there are creditor concerns over the transparency of pre-packs, but we believe – and evidence has shown – that pre-packs can be a successful tool for rescuing businesses and protecting jobs.
“We look forward to contributing to the government’s review and hope that the final proposals can help to increase the confidence of the creditor community in this successful rescue tool."
Graham will report her preliminary findings to ministers by the end of 2013, with a final report to be published in the spring of 2014.