The Association of British Insurers (ABI) has called for tougher measures to stop companies abusing the pre-pack system which enables them to wipe debts by entering administration but be bought immediately after in a pre-arranged deal.

Nick Starling, director of general insurance and health at the ABI, said it was not against measures to ensure viable businesses remained afloat but warned against allowing companies to misuse pre-packs. 

‘Allowing companies to abuse the pre-pack system has damaged the reputation of the insolvency industry. It is essential that any new regime for company voluntary arrangements (CVAs) is appropriately supervised and the process is both transparent and fair to all creditors,’ he said. 

‘Our main concern with pre-pack administrations is that often suppliers are trading blindly with a company that knows it is about to enter into a pre-pack right up until when the deal is done.'

He added: 'Suppliers with trade credit insurance will be covered for their losses, but the lack of transparency leaves insurers facing an unlevel playing field and uninsured suppliers out in the cold.'

In June national IFA The Money Portal entered into pre-packaged administration and wiped out more than £27 million of bank debt and £25 million of shareholder money. It now trades under the name of Honister Capital as a debt-free entity.