The Business and Enterprise Regulatory Reform (BERR) committee is launching an investigation into the way failed businesses are being put into "pre-pack" – where a buyer is lined up before they go into administration – amid allegations that the practice enables them to escape debts and creditors.

Creditors have voiced concern about the steady trickle of businesses involved in what is described as "revolving door" administration by critics and a "legitimate process" by the failed operations.

Retailers such as Whittard, USC and The Officers' Club are among the more prominent business failures pre-packaged for administration in recent weeks.

Sir Tom Hunter's West Coast Capital group immediately bought back USC after the business went into administration. The deal caused a stir but a spokesman for the Scottish billionaire said yesterday the arrangement had saved jobs without producing protests from creditors.

He added: "We used a legitimate scheme to rescue as many jobs and stores as possible. The alternative was closure of the entire business, losing 1,427 jobs, leaving suppliers and landlords with effectively nothing.

"USC's largest creditor was West Coast Capital. That, I hope, speaks for itself, as does the fact we are working very well with all our suppliers going forward and have received not one complaint from them."

Peter Luff, Tory chairman of the BERR committee, plans to use an inquiry into the operations of the Insolvency Service as a platform to examine the administration system and the pre-packaged practice. Stephen Speed, head of the Insolvency Service, will be questioned about whether the scheme is being abused and asked if changes are needed when he appears before MPs on January 27.

Business advisers, creditors and other groups are being invited by Mr Luff to submit their views. He said yesterday: "We may well expand the inquiry."

• Lord Mandelson, the Business Secretary, is expected to come under pressure from Labour members of the committee to give more details of the planned part-privatisation of Royal Mail when he appears before MPs on Wednesday.



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