The government claimed it wants major creditors to show ‘sympathetic consideration’ towards businesses that have hit short-term financial difficultyand help their chances of survival.
A London Business School study of three of the major UK clearing banks this week showed that three-quarters of companies that hit financial difficulty emerge from bank supervision and avoid formal insolvency procedures.
The delayed DTI/Treasury review is one part of a general shake-up of the personal and corporate insolvency culture, that has come under fire from insolvency experts as patchwork, but the government has paraded it as a bid towards instilling a US-style entrepreneurial culture in the UK.
The Commons last week gave a separate Insolvency Bill its second reading, which aims to offer a 28-day moratorium on creditors rights to give small businesses a breather, and a review of personal bankruptcy procedures earlier this year.
The Inland Revenue and Customs & Excise are the main targets of the government review, and are two of the major UK creditors responsible for putting companies out of business.
Byers and Primarolo recognised that the taxman and Customs often ignore the long-term viability of a company in order to secure payment on crown debts and needed to be more consistent in their handling of the problems businesses in trouble have meeting their debts for tax and NIC.
However, changes will not take effect until April next year, when a new joint Revenue and Customs unit will oversee each company voluntary arrangement plan put forward by businesses in difficulty and draw up a timetable for both departments to stick to when dealing with CVAs.
Byers said: ‘The review group did consider abolition of crown preference but recognised that unsecured creditors would not necessarily gain from its abolition, because any monies would often go to floating charge holders.’
Other options under review include allowing courts to make temporary administration orders to wind up trading companies, a set of financial health checks for small companies and the removal of the right of a floating charge holder to veto administration orders.
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