The twilight zone with David Jetuah

Desperate times call for desperate measures, but putting out feelers to gauge opinion on letting directors of banks have an easier ride under insolvency laws will look like madness. The Treasury’s 70-page document released last week asked for views on possible tweaks to insolvency rules. The Insolvency Act says directors can be held liable for certain losses and face disqualification if they fail to take every possible step to minimise loss to creditors when insolvency is inevitable.

The crux of the issue for the Treasury lies in getting banking directors to throw in the towel early to prevent wider fallout. The ‘twilight zone’, the time from entering financial difficulty to going into administration, would be shorter.

But insolvency practitioners don’t think the proposal holds water ­ it’s hard to judge whether everything that can be done, to minimise loss to creditors by trying to keep the company out of administration, has been done.

It’s very rare for a director to be held liable under this part of the Insolvency Act, so the experts believe relaxing the rules won’t be any kind of incentive for banking top brass.

What’s more worrying is if this will lead to a two-track system ­ one for banks and one for everybody else.
The Insolvency Act may not be perfect, but at least everybody’s singing from the same hymn sheet. Making special rules for certain sectors could open a can of worms for the government at a time when it already has plenty on its plate.

The Treasury said it was just asking for initial views and stressed any amendments would be considered carefully, and limited in scope. Hopefully, IPs won’t be in for any unwelcome surprises later this year.

David Jetuah is a reporter on Accountancy Age