Ministers have announced new proposals to tackle the misuse of pre-pack insolvencies, which often leave customers and suppliers to failing businesses out of pocket.

Pre-packs sell off money-making parts of a business before it is declared insolvent, allowing owners to claw back losses.

But a review of the practice last year by Teresa Graham, an expert in better regulation, showed that pre-packs were not always transparent and did not deliver the best outcomes for customers and small business suppliers.

Recommendations from the report include:

- Creating a ‘pre-pack pool’ where details of a proposed sale to a connected party can be shown to an independent person prior to the sale taking place.

- Requesting connected parties to complete a ‘viability review’ for the new company to improve its chances of success.

- Requiring valuations to be carried out by a valuer who holds professional indemnity insurance, to increase confidence that the sale is for a fair price

- Ensuring proper marketing is undertaken in order to maximise sale proceeds.

Ms Graham said: “My review of pre-pack administrations over the last nine months shows that they have a unique place in the insolvency market.

“However there must be major changes in the way they are administered. I believe my proposals, implemented as a complete package, will lead to real improvements in pre-packs.

“I hope the insolvency industry, as well as all those in business, will embrace these measures as it is in everyone’s interest that they are successful.”