The twilight zone with David Jetuah

Desperate times call for desperate measures, but putting out feelers to gauge
opinion on letting directors of banks have an easier ride under insolvency laws
will look like madness. The Treasury’s 70-page document released last week asked
for views on possible tweaks to insolvency rules. The Insolvency Act says
directors can be held liable for certain losses and face disqualification if
they fail to take every possible step to minimise loss to creditors when
insolvency is inevitable.

The crux of the issue for the Treasury lies in getting banking directors to
throw in the towel early to prevent wider fallout. The ‘twilight zone’, the time
from entering financial difficulty to going into administration, would be
shorter.

But insolvency practitioners don’t think the proposal holds water ­ it’s hard
to judge whether everything that can be done, to minimise loss to creditors by
trying to keep the company out of administration, has been done.

It’s very rare for a director to be held liable under this part of the
Insolvency Act, so the experts believe relaxing the rules won’t be any kind of
incentive for banking top brass.

What’s more worrying is if this will lead to a two-track system ­ one for
banks and one for everybody else.
The Insolvency Act may not be perfect, but at least everybody’s singing from the
same hymn sheet. Making special rules for certain sectors could open a can of
worms for the government at a time when it already has plenty on its plate.

The Treasury said it was just asking for initial views and stressed any
amendments would be considered carefully, and limited in scope. Hopefully, IPs
won’t be in for any unwelcome surprises later this year.

David Jetuah is a reporter on Accountancy Age