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New proposals to give companies breathing space

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Large and medium-sized companies facing difficulties could receive additional help under proposed changes to insolvency laws announced in the Budget this week.

The Insolvency Service will consult on two important proposals:

* Giving large and medium-sized companies breathing space while they seek legally binding Company Voluntary Agreements (CVAs) with their creditors, without first having to place their companies into administration.

* Giving absolute priority to new money lent to companies in CVA or administration. This would make it more attractive to lend to companies in this situation, allowing them to access the funding they need to get back on their feet and stay in business.

Business Minister, Pat McFadden said:

"The Government is focused on helping companies in difficulty. Giving more businesses extra breathing space will encourage company rescues. It could make all the difference between a firm staying in business or entering insolvency - preventing the knock-on effects that failures have on employees, directors and creditors."

Currently only small companies facing financial difficulty are able to obtain a moratorium on creditor action while seeking agreement with their creditors to deal with their debts. The new proposals would extend this to larger businesses.

The proposed changes will help to give all companies access to the new funds they need to get back on their feet. Investors who put new money into a company in either a CVA or administration would be at the top of the list for getting money back if the company eventually fails. Such a measure would make it more attractive to lend to such companies, allowing them to access funding they need when they need it most.

In addition, the Insolvency Service announced that this summer will see the publication of the first of a series of regular reports on the monitoring of the operation of pre-pack sales.

The Statement of Insolvency Practice 16 issued earlier this year requires administrators to provide creditors with detailed reports explaining their decisions for a pre-pack administration as soon as they are appointed. Closer scrutiny of the reports by The Insolvency Service is designed to ensure that creditors are not being treated unfairly through the abuse of pre-pack sales.

Notes to editors:

1. Small companies are defined by section 382 of the Companies Act 2006 as follows:

Turnover: not more than 6.5 million

Balance sheet total: not more than 3.26 million

Number of employees: not more than 50

Medium sized companies are defined by section 465 of that Act as follows:

Turnover: not more than 25.9 million

Balance sheet total: not more than 12.9 million

Number of employees: not more than 250

Large sized companies are any which exceed the conditions set out for a medium sized company in the Companies Act 2006.

3. The consultation to extend CVAs to large and medium sized firms will take place in June. A report on the first six months of monitoring pre-packs will be published in the summer and not in June as stated in the Budget.

4. In 2008, there were 587 CVAs compared to 4822 administrations.

5. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the official receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; advises Ministers and other Government Departments on insolvency law and practice; and carries out confidential enquiries on behalf of the Secretary of State for Business, Enterprise & Regulatory Reform through the Companies Investigation Branch.

6. Further information about the work of The Insolvency Service is available from http://www.insolvency.gov.uk


About the Author

Crown Copyright. Material taken from The Insolvency Service. Reproduced under the terms and conditions of the Click-Use Licence.


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Article Published/Sorted/Amended on Scopulus 2009-05-12 13:30:35 in Business Articles

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