BusinessBusiness RecoveryCreditors lose out in Budget

Creditors lose out in Budget

Creditors face receiving lower returns from company administration procedures because of new tax arrangements introduced by chancellor Gordon Brown, insolvency experts have warned.

Link: Budget 2003 special

The Budget introduced new rules that will mean a company enters a new accounting period as soon as it enters administration. This now makes it impossible for administrators to offset the proceeds from the sale of assets against capital gains tax liabilities.

The rules are designed to simplify tax matters so administrators can ‘settle the affairs of the company more quickly’, according to the Inland Revenue.

Insolvency practitioners have claimed the changes will make the procedures easier because administrators will only be responsible for tax liabilities that arise during the ‘new’ accounting period.

However, returns to creditors are almost certain to be hit by the new measures, because of the inability to offset against CGT.

Matt Dunham, insolvency partner at RSM Robson Rhodes, said: ‘It could lead to reduced recoveries for other creditors under certain circumstances where there is a significant capital gain in an administration.

‘If we are appointed three months into the year, currently we could sell the business and capital and offset the taxes. Under the new rules it’s no longer possible.’

This is just the latest in a plethora of changes facing insolvency practitioners over the coming year. The Enterprise Act, which is due to come into effect this year and next, will change the law to make it easier for bankrupts to come out of bankruptcy and remove most receiverships.

Personal insolvency experts have long complained that the bankruptcy laws were made too lax.

The new law will also mean that the Crown – the Revenue and Customs & Excise – will no longer have the status of preferential creditors.

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