Frances Coulson comments on call for insolvency law reform
“The Enterprise Act is ten years old this year so no harm in looking back at its success.
In fact, since the introduction of the Enterprise Act, corporate insolvencies and the overall liquidation rate has remained lower than in the early 1990’s recession. It has had many successes in bringing in some of the aims of the ‘rescue culture’ and importing some entrepreneurial spirit from the US already – these are not new ideas. R3 wrote to Mr Eustice after the first reading of his Private Member’s Bill
Our insolvency regime does not need radical overhaul but a few minor changes. It performs better than America in terms of speed and returns to creditors. World Bank Data ‘Doing Business’ states that the UK's recovery rates (‘resolving insolvency’) is the 6th best in the world - better than the US at 15.
Nor can one make the British public American by statute, they won’t feel the same way about success and failure. Our experience is that while some experience of failure can be valuable, the vast majority of business failures are causes by poor management. Chapter 11 works better for larger firms in the States anyway.
Our system is relatively nimble and not slowed down by the courts – as stated – this leads to the creation of (even more) zombie companies. We do not agree with the open ended debtor in possession proposals as this would have a negative impact on bank lending. We already have debtor in possession arrangement already such as CVAs where the existing management stays in place, and we have many of these in the retail sector. There is an interim order for sole traders if necessary.
We do think that greater protection should be given to businesses from the actions of suppliers who can demand ‘ransom payments’ on learning of the insolvency or increase existing tariffs. This can derail a potential rescue and R3 has been leading a campaign called ‘rescue to ransom’ to change to extend the ‘automatic stay.’ (as Mr Eustice mentions)
As to the suggestion of administrations for unincorporated businesses - sole traders are currently dealt with through the bankruptcy regime. Furthermore - LPA receivers are not IPs and should be dealt with through their own regulation.
Overall, we do not need a full scale culture change in the UK.”
Frances Coulson, President of R3, the insolvency trade body
R3 Press Office