The number of pre-pack deals in the recruitment sector could plummet as a result of new reforms, according to John Bissell, senior partner at business sales consultancy LBA.

Pre-pack deals mean failing businesses can be sold to new owners without the approval of unsecured creditors. Under draft proposals published this week, administrators will need to give all creditors three days’ notice, which could affect the value of a quick ownership change.

Bissell told Recruiter: “There is a very strong argument in favour of pre-packs in the recruitment sector. The authorities have allowed the practice to develop because it protects employment.

“If there is a smooth transfer of the business you don’t end up with a lot of redundancy costs and unemployment benefit costs. In a recruitment business you not only have the office staff but the temps as well and if they can have continuity of employment as a result of a pre-pack, they’re not thrown out of work either.

“It was too easy for people to do a pre-pack without going through the proper process and protect the creditors. In an ideal world the insolvency practitioner should be contacting anybody who is in a position to acquire the business and get the best price they can and realise as much as much assets as they can to pay off the creditors. In reality that wasn’t happening.

“Anything that makes it more difficult to effect a deal with the owners without advertising it and giving a period of notice is going to reduce the number of pre-packs because the problem from the owner’s point of view is if you are looking to do a pre-pack and someone nips in and put forward a better offer, you end up losing your business.

“We are not seeing anything like the number of pre-packs we saw in 2009. As the industry has recovered, the number of prepacks has reduced.”