Enterprise Act declared a success
The 'rescue culture' is increasingly becoming reality, official statistics due out later this week will reveal.
Link: London insolvencies fall
Research conducted in advance of the release of the DTI’s quarterly insolvency statistics by Begbies Traynor, the insolvency specialist, has revealed a dramatic growth in the use of administration.
The procedure, which aims to rescue troubled companies as going concerns, more than doubled, from 155 to 368 year on year for the second quarter of 2004. It was also increasingly used for much smaller companies, averaging £1.5m compared with £13m.
By contrast, the number of receiverships, which are now frowned upon because they offer little to creditors other than the banks, plummeted 43% from 282 to 160.
Until now, insolvency practitioners have argued it was too soon to say if the September 2003 Enterprise Act had succeeded.
The Act set out to foster a rescue culture by making administration the procedure of choice and doing away with receivership.
Nick Hood, senior London partner at Begbies Traynor, said: ‘This is the first really meaningful indicator for the impact of the Act – we are now a year on and we can compare like with like.
‘The Enterprise Act is proving successful in moving more rescues into the Administration procedure and away from receivership.’
But he warned what increasingly appeared to be the ‘deteriorating health of the economy’ might also be a factor in the administration boom.
The DTI’s official insolvency statistics are released on Friday.