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