Reality of Insolvency Bill may not live up to the hype, MPs warn

The Trade and Industry Committee demanded the removal of three key clauses andserious consideration of changes to a fourth.

In a toughly-worded report, the MPs backed the idea of moratorium to givesmall and medium sized companies a chance to be rescued, while warningthat the results may be less than hoped for.

But they called on the Government to:

(i) drop a clause giving the Secretary of State for Trade and Industrypower to extend moratorium to cover large firms as well;

(ii) scrap a clause giving power to draw up regulations requiring securedcreditors to give warning before appointing an administrative receiver;

(iii) reconsider empowering the Secretary of state to authorise accountantsand other professionals other than insolvency practitioners to act asnominees or supervisors for a moratorium or a company voluntaryadministration; and

(iv) give further consideration to the proposed blanket ban on a nomineesubsequently acting as a receiver or in some other capacity towards theclient company.

The MPs also questioned giving creditors the right to take actionagainst a nominee.

And they urged more consideration before using the bill to guaranteewidows can retain property held jointly with a deceased debtor.

The committee, chaired by Scottish Labour MP Martin O’Neil,said the Bill was a modest but worthwhile measure but warned its results’may be rather less than its advance publicity suggests’.

They said lack of finance for CVAs was the biggest problem – togetherwith the insistence of the Inland Revenue and Customs on payment of taxesdue and of local authorities on the payment of rates which ‘means thatCVAs often failed in cases where a bank would otherwise be supportive’.

The MPs felt: ‘The proposed moratorium is welcome, but it is not a panaceafor companies in difficulty and for many companies the subsequent CVAprocedure would be wholly unsuitable.’

Related reading