The Enterprise Act is supposed to have ushered in a new era of simpler rescues for insolvency practitioners. But less than 10 days after the Act came into effect, practitioners are warning that it could be a hindrance instead of a help.
After two laborious years of drafts and consultations, the government had hoped to come up with the definitive insolvency rules that would make corporate insolvency ‘faster, fairer and focused on rescue’.
But some IPs fear the changes will have the opposite effect and result in a slower and more cumbersome process. Some are even complaining that important issues have been overlooked.
Mike Jervis, business recovery expert at PricewaterhouseCoopers, said that getting rid of administrative receivership would slow things down.
‘Administrators have wider duties than receivers do,’ he explained.
‘They have to focus more on the past and investigate individual transactions. This can lead to a situation where the process is lengthier and more expensive.’
The government’s new focus on saving a ‘company’ rather than a ‘business’ is also a cause for concern. Although it attempted to appease IPs by giving them the final say on how cases are resolved, many say the onus remains on selling the company.
Jervis said the problem with saving the company was ‘an incredibly lengthy process with many interested parties’. ‘Many different stakeholders have to be kept on side. Keeping a company alive is much more difficult than just selling the business,’ he said.
Experts also have mixed feelings about the fact all creditors are on a level playing field during a rescue.
Although they are happy that smaller creditors are likely to be given a bigger slice of the creditor’s pie, they are worried that banks, the Inland Revenue and Customs & Excise will become more aggressive in chasing debts. The new ‘business friendly’ rules were being criticised just one week before the Act came into force on 15 September.
At the TUC conference in Brighton, Sir Bill Monks, director general of the T&G union, said that the government was leaving a ‘loophole’ in the legislation that allowed a company to go bust after it had unfairly dismissed some of his members.
This ‘loophole’ refers to the practice of ‘phoenixing’, when a company goes into voluntary liquidation and re-emerges under a different name with a new director. Although business recovery experts agree that this process can be beneficial, it remains a grey area. It is left up to the individual IPs and the judges who grant the liquidation order to decide whether the endangered business should be allowed to ‘do a phoenix’.