Abacus Online November 2001
Productivity and enterprise: Insolvency - a second chance
The government recently announced a shake-up of UK insolvency law. It intends to take radical steps to build 'an enterprise culture'. The proposals include tougher penalties for reckless bankrupts and less severe sanctions than currently exist for 'innocent' bankrupts. In addition, the government plans to remove both the rights of the Crown as a preferential creditor and the right of banks to appoint administrative receivers.
Currently bankruptcy usually lasts for a period of three years. Under the government's proposals, honest bankrupts will be discharged after a maximum period of only 12 months, the thinking being that individuals will be free of the restrictions imposed by bankruptcy at an early stage which will aid rehabilitation and business start-ups. The decision on whether or not a bankrupt is 'honest' will apparently been made by the Official Receiver. 'Guilty' bankrupts will become subject to a Bankruptcy Restriction Order, thus protecting the public and other businesses for a longer period of time, to a maximum period of 15 years. Furthermore, it is planned that the Official Receiver will be able to act as nominee and supervisor in post-bankruptcy individual voluntary arrangements.
The practical problems faced by former bankrupts are often greater than the legal restrictions they faced whilst bankrupt. Prejudice and a poor credit rating generally last much longer than the restrictions associated with bankruptcy. The trigger point, namely the making of the bankruptcy order, is often of much greater relevance to the debtor than the duration of the bankruptcy.
It will be interesting to see how many bankrupts challenge the Official Receiver's decision that they are guilty, under the human rights legislation! The proposed changes should however be good news for those with a gambling addiction, as the associated criminal offences are likely to be repealed!
The proposed changes to the corporate insolvency arena concentrate on removing the right of certain secured lenders to appoint a receiver to sell assets covered by a debenture, removing the preferential creditor status of a HM Customs and Excise and the Inland Revenue, and streamlining the Administration procedure. There will be a new and specific power to allow banks and other secured lenders to apply to the court for an Administration Order. This could theoretically be done without notifying the company or its directors - a potentially draconian power.
Germany and Australia have both abolished Crown or State preference, and the present in government plans to do the same in this country, the idea being that the unsecured trade creditors will benefit through larger pay outs from insolvent businesses.
As with a lot of proposals for reform, they appear to offer certain benefits. However, it will only be in practical day-to-day situations where they can be judged to have succeeded or failed.
For more information contact David Butler, Business Recovery Partner,
davidb@ay.nunn-hayward.com
Nunn Hayward - Business Recovery and Insolvency Department
It is now even more convenient to contact our Business Recovery and Insolvency Department.
A new free-phone number has been introduced to cover all four offices. Ring 0800 5870918 to access specialist business recovery and insolvency advice.
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Please contact us to discuss the above furtherTel: 01753 888211 Fax: 01753 889669 Email: abacus@nunn-hayward.comNunn Hayward, Sterling House, 20 Station Road, Gerrards Cross, Bucks SL9 8EL.
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Registered Auditors, Licensed Insolvency Practitioners and authorised to carry on investment business by the Institute of Chartered Accountants in England and Wales.
This publication has been prepared as a guide only to topics of current financial and business interest. No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by us. All rights reserved.
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