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Government to crack down on "Phoenix" insolvency deals

The UK government has announced plans to crack down on a loophole in insolvency laws which has seen many creditors lose out while healthy parts of a fallen business can often be sold on to former directors. These so-called "pre-packed" administrations are becoming more prominent as UK businesses continue to struggle with healthy areas of the business often sold on very quickly to former directors.

While the authorities, creditors and regulators may complain about such activities there is no doubt they are perfectly legal and well within the laws. The truth is that while it may often leave a sour taste in the mouth to learn that a former director of a company which has gone into administration is able to buy the "healthy parts" of the operation in double quick time, there is also a need to ensure continuity for the healthy operations.

It is difficult to see what can be changed in the short to medium term to prevent former directors from acquiring parts of companies in administration because very often time is of the essence and money is required to pay creditors as soon as possible. This is a phenomenon which will continue to hit the headlines for many weeks, months and years to come as the hangover from the worldwide recession is certain to be around for some time.

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