SMALL business lobby group the Forum of Private Business has criticised the Government's decision to ditch reforms of the controversial pre-pack insolvency process, warning it can threaten the future of creditors who are left with debts.

In a pre-pack administration, the assets of a company are sold immediately after it enters administration, often to directors of the original firm.

Under the Government's proposals, insolvency practitioners would have had to notify creditors in advance of a pre-pack and allow three days for the proposals to be challenged.

Senior Forum policy adviser Alex Jackman said: "Tighter legislation would protect more firms from phoenix companies abusing the pre-pack insolvency process by starting again while failing to pay them."

The Government said pre-pack deals were often the best way of maximising returns to creditors.

But its decision was criticised by organisations representing landlords, who can suffer due to unfulfilled rental agreements.

Bonmarche, La Senza and Blacks have recently undertaken pre-packs.