The regulations will come into effect once they have been debated and passed in both Houses of Parliament.

New laws will require mandatory independent scrutiny of pre-pack administration sales where connected parties - such as the insolvent company’s existing directors or shareholders - are involved in the purchase, the government has announced today.

The laws seek to improve confidence and transparency in pre-pack administration sales, giving the general public and creditors reassurance that their interests are being protected alongside that of the distressed business.

Pre-pack administrations involve arrangements to sell part or the whole of a company’s business or assets prior to the company entering into administration. The sale is completed on or shortly after the appointment of an administrator and the speed of the transaction helps preserve the value of the business while saving jobs.

Pre-pack administration sales are widely considered to be a valuable rescue tool. However, concerns have been raised that arrangements may not always be in the best interests of creditors. For example, where the sale is made to a connected party, such as the company’s directors or shareholders.

Colin Haig, president of insolvency and restructuring trade body R3, said: “Pre-pack administration sales involving connected parties are an important rescue tool as they are often the best way of preserving a business and ensuring maximum returns to creditors.

“The insolvency and restructuring profession is very sensitive to the impact of pre-packs on creditors, and there is a careful balance to strike in these situations between transparency, protecting creditor value, and business rescue, which these proposals support.”

The Government will introduce regulations into Parliament in due course.