The proposed improvements to legislation had caused controversy as it would leave creditors unpaid following the administration and sale of a business.
In a statement, the Employment Minister Edward Davey said that Government was not convinced of the benefits having “taken into account all of the issues.”
The Forum of Private Business responded to the developments with apprehension, suggesting Government should go even further towards protecting creditors from so called ‘phoenix companies.’
Research from the Forum, under the ‘cost of compliance’ survey, revealed that UK small businesses are owed more than £33 billion in outstanding invoice payments.
Senior Policy Adviser at the Forum, Alex Jackman, said: “Cutting red tape is hugely important but, against the backdrop of the Government’s de-regulatory agenda this is one area where tighter legislation would protect more firms from ‘phoenix’ companies abusing the pre-pack insolvency process by starting again while failing to pay them.
“Late payment, or in this case non-payment, devastates firms’ ability to maintain any kind of healthy cash flow and threatens their very survival.
“The Government is working on some extremely positive projects at present to help firms minimise the problem and offering them more protection in this way would also be of great benefit.”
Mr Davey had argued that pre-pack sales can offer flexibility in business rescues when used properly.
However, the Forum had expressed concerns over the abuse of the process, for example when an existing management team or associates are able to effectively buy back the company without consultation with creditors.
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