London Briefing:Cutting unsecured creditors and suppliers adrift when firms fail is a source of controversy, writes Fiona Walsh

AS THE December rent demands roll in, the list of casualties in the retail sector lengthens by the day.

Entertainment chain Zavvi; tea and coffee merchant Whittards of Chelsea; menswear retailer Officers Club; fashion company USC and photography studios chain Olan Mills have all collapsed into administration in the past week alone.

The formal appointment of administrators at Adams, the childrenswear chain owned by Northern Ireland businessman John Shannon, is expected imminently and a dozen or more chains are expected to suffer the same fate in the next few weeks.

For some, administration will be a long, painful and expensive process. For others it will all be over in an instant, as the administrators are brought in to execute a pre-arranged sale of the business, often to its existing owners. Thus the failed company rises, phoenix-like, from the ashes of its brief administration, unburdened by much of its previous debt and usually with a much slimmed-down workforce.

These so-called "pre-pack" administrations have become increasingly common in recent years, now accounting for around half of all such arrangements, and numbers are set to soar further as the recession bites in 2009.

Controversy surrounding such deals is also more acute, reflecting growing unease at the way in which failed companies, with the consent of secured creditors, can be repackaged for purchase, leaving employees, suppliers and unsecured creditors to bear the brunt of the losses.

Of the recent retail collapses, Officers Club, Whittard and USC were pre-pack deals. The 120-year old Whittard chain, part of the troubled Icelandic retail investor, Baugur, collapsed two days before Christmas and was immediately bought up by the private equity firm Epic. The price was said to be less than £1 million, a fraction of the £21 million paid by Baugur three years ago.

Officers Club, which failed on the same day as Whittard, was sold immediately by administrators Pricewaterhouse Coopers to a company backed by David Charlton, the retailer's chief executive. Charlton took on 118 of the 150 stores in a move PWC said would secure the jobs of more than 1,000 staff.

Designer fashion firm USC, which collapsed this week, was part of retail entrepreneur Sir Tom Hunter's empire. Hunter, a noted philanthropist and one of Scotland's richest men, bought 43 of USC's 58 stores from the administrators, using another of his firms for the deal. It will secure more than 1,100 jobs, but the remaining 15 stores look set to close, costing around 300 jobs.

The speed with which a deal can be concluded is one of the key attractions of a pre-pack administration. The business continues to trade while its future - or a slimmed down version of it - is secured away from the spotlight, avoiding damaging headlines and the inevitable panic among suppliers and employees.

But critics, such as the investor body the Association of British Insurers, argue that there should be more transparency in the process, and want greater protection for suppliers. The ABI also wants suppliers to have more of a say in the sale process before the administration goes ahead.

There is a need for speed if an ailing business is not to be damaged further, but against this the administrators must weigh the prospects of a better price - and thus a bigger return for creditors - in a formal sale process.

For suppliers, the pre-pack process can be bewildering. The ABI's Nick Sparrow tells of suppliers that have despatched goods to a customer one day only to find the next day that the business, although still run by the same management, is under new ownership and that they have joined the list of unsecured creditors.

Roger Lawson of the UK Shareholders Association is fiercely critical of pre-pack administrations. Writing in the Financial Times earlier this month, he called them a "very questionable business practice", allowing administrators to become involved in a sale process before they are formally appointed and leaving them no time to consider alternative buyers.

Lawson believes pre-packs encourage the old practice of "phoenix" companies, where the dominant directors or shareholders buy the assets and continue to trade while creditors and minority shareholders receive nothing. "Administration was never conceived as a way for managers of a business to escape from its creditors and fellow shareholders, but that is what it is being used for," he said.

As more and more companies lose the struggle to survive in the coming year, the controversy over fast-track administration will intensify. If insolvency practitioners want to avoid joining bankers on the list of credit crunch hate figures, they need to lift the veil of secrecy over these transactions.

There are undoubtedly advantages in an instant sale of a troubled business, but the process must be fair - and it must be seen to be fair, to creditors, suppliers, shareholders and employees alike.

• Fiona Walsh writes for the Guardian newspaper in London