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Survive and prosper - the new Enterprise Act changes
Published on: 22 September 2003
We believe that new company insolvency recovery procedures will reduce the number of liquidations and substantially increase the return to creditors if directors know about and use them.
The feeling has been for some that the former insolvency regime was a blunt instrument, more often than not resulting in a total loss for creditors and a strong negative stigma for directors of failed companies
Comparisons are often made with the US where the culture is very much to encourage directors of failed companies to have another go, with the liquidation being seen almost as part of a learning curve. Two particular features of Chapter 11, the US insolvency procedure, are that it tries to save companies whenever possible and it allows creditors the opportunity to have a real say in the final outcome. The UK has embraced these concepts and both have been incorporated into the new UK legislation.
The main highlights of the new legislation contained in the Enterprise Act 2002, which has just come into effect, are described in the attached pdf document. In summary these are:
* A real focus on trying to save companies rather than simply selling the assets to repay creditors.
* Simplifying the administration procedure and making it less costly to adopt.
* By allowing them to retain control over the process when they are most affected, encouraging lenders to prefer administration to administrative receivership, abolishing the latter altogether for new charges
* No longer paying the Inland Revenue and HM Customs and Excise in front of the other unsecured creditors
* Giving ordinary creditors more of a stake in the recovery process and a bigger say in what happens.
We expect the net result of the new company insolvency procedures to be a gradual decline in liquidations and an increase in administrations and CVAs, which look set to become the rescue procedures of first choice, with significantly improved outcomes for creditors. Clearly, the procedures will need time to bed in through practice.
As well as the attached summary, further information on the insolvency reforms contained in the Enterprise Act can be found at http://www.insolvency.gov.uk/reform.htm
Please call James Tickell on 01489 550454 if you have any technical queries.
ENDS
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