Draft reforms to pre-pack deals could hit recruiters hard by forcing them into liquidation, according to Rachel Jenner, corporate insolvency solicitor at Farleys Solicitors.

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

Jenner told Recruiter: “Pre-packs are good for keeping a business going and securing jobs but if the government did introduce three-day notice provisions, it would affect the value and goodwill that was left in a business; customers might decide not to deal with the company and that would mean there would be no purchaser and no money coming into the business and the employees would lose their jobs. Once word gets out, any value the business is eroded.

“If a recruitment agency has to give three days’ notice you can imagine that all those staff would get up and go and talk to another agency and leave — they are their [the firm’s] key assets.

“That would leave that business with no value or assets. They would be left with nothing after those three days. They have got nothing to sell and the only option is to go into liquidation. If you go into liquidation, there is no return for the creditors.

“With liquidations people lose their jobs and that’s it. In terms of pre-packs people keep their jobs and returns to creditors are higher.”