Tony Supperstone says the insolvency proposals set out in the Chancellor’s Enterprise Bill – far from being an entrepreneurs’ charter – may turn out to be a rogue’s charter if individuals are allowed to declare themselves bankrupt, sit tight for six months, and then start up a new business with all debts written off
For a government that has assured entrepreneurs that it is on their side, the growing business sector has little to celebrate, following the announcement of the much-heralded Enterprise Bill.
Insolvency practitioners are united in their concern at the proposed abolition of administrative receivership. The procedure is without doubt the most effective route to maximise business survival and has a well-established track record of success.
With no lengthy court procedures that delay rescue, it enables buyers to purchase businesses without liabilities around their necks, and ultimately saves jobs. Administration – the Government’s preferred route to recovery – is a slower, court-driven process, and the only way for it to work effectively is with the formation of a dedicated insolvency court with its own judges.
The deluge of applications that the abolition of administrative receivership will inevitably generate is a very real concern for practitioners, as are fears of application petitions being rubber-stamped through to speed up the process.
The bill’s proposals, which prevent the banks from appointing administrative receivers, could lead to a fundamental change in their lending criteria, requiring greater assurances of security from owner managers borrowing money. The resulting higher fees and increased charges over their assets will impact hugely on entrepreneurs who rely heavily on bank finance, making it more difficult for them to borrow money – yet another barrier to enterprise.
The Enterprise Bill’s proposed reforms for bankruptcy, with its misguided aim to mirror the US system, have also been met with disapproval by insolvency experts. In an attempt to replicate the debtor-driven business environment of the US, where the entrepreneurs’ mantra says that you haven’t succeeded until you have failed at least once, the Chancellor appears to have overlooked the UK’s historical creditor-driven culture.
Our fear is that the bankruptcy reforms create a rogue’s charter unless firm and rigid benchmarks are put in place to define the distinction between honest and dishonest bankrupts, and the way in which the law treats them.
Current ruling states that honest bankrupts can propose an Individual Voluntary Arrangement to creditors, tying them to the long-term return of funds. However, the new proposals in effect enable the individual to sit tight, declare themselves bankrupt, wait six months and then start up a new business, with all debts written off.
One positive measure widely welcomed by insolvency practitioners is the proposed increase in maximum penalties against dishonest bankrupts. Despite concerns about the abolition of administrative receivership and the misgivings surrounding the revised bankruptcy proposals, a chink of blue sky for business advisers is the bill’s proposed abolition of Crown preference.
Set to cost the Treasury £100m, the proposal is heartily welcomed by the business recovery fraternity, who have long viewed Crown preference as a major hurdle to rescuing troubled businesses. The relegation of the Inland Revenue and Customs & Excise to their rightful places alongside unsecured creditors offers hope that they will be forced to tighten their less-than-rigorous collection procedures. While the Revenue has taken a hard line on individual and company voluntary arrangements in the past, the hope is that the bill’s proposals will lead to its full participation in the rescue culture.
But from a Chancellor whose aim is for parliament “to contribute to the creation of a deeper and wider entrepreneurial culture”, the Enterprise Bill is far from being an Entrepreneurs’ Charter.
With the White Paper due for publication over the holiday period, our concern is that the Government has not left the insolvency and business recovery bodies enough time to respond in full to what is a mixed bag of proposals.
