Wednesday, 03 June 2015 14:46

Small Business Act 2015 steers insolvency in creditors' favour

The granting of royal assent to the Small Business, Enterprise and Employment Act 2015 should be good news for creditors, particularly those who are left owed money by a business customer who has gone into corporate insolvency.

That is because there are several measures included in the legislation that should leave more money in the pot to pay creditors what they are owed, even after the administrators take out their fee; and there may also be the option to pursue a company's former directors personally for redress.

It's all part of wider reforms to the UK insolvency regime, aimed at making the whole process fairer on creditors and harder on collapsed businesses which, until now, have in some circumstances been able to not only escape the insolvency process without any major suffering, but even to benefit from it.

Administration Fees

First up, there's the change to how insolvency practitioners are able to charge their fees; these must now be quoted upfront, with an accurate assessment of how much work, and how many chargeable hours, the administrators will put into a company.

Although subsequent changes may be allowed, for example if the required workload increases substantially, these must be agreed with the company's creditors - so administrators should no longer be able to simply siphon off a failing business's entire bank balance by claiming an endless series of fees and man hours.

New regulatory requirements will also be imposed on the industry, and the government says: "These include a requirement that insolvency practitioners should provide services at a cost which is fair and reasonable. This will require the regulators to take action to deal with unreasonable fees charged by insolvency practitioners."

Keeping Creditors in Touch

Creditor contact should be much easier, as old-fashioned demands have been written out of the legislation; meetings no longer have to be in person, but can take place using correspondence or even via videoconferencing, removing the need to travel to meet with insolvency practitioners.

Liquidators can now even assign certain legal rights to creditors and third parties, allowing them to directly pursue claims that historically would have been the preserve only of the administrators themselves.

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Director Misconduct

A couple of measures have implications for dodgy dealings by directors (always a popular topic in our blog posts).

For example, if a company collapses due to the director's dodginess, you will be able to claim back what you are owed from that director as an individual, even if the company has been declared insolvent - no more doing a runner with your money after closing down the trading name.

A reform of pre-pack administration is also underway, so that a collapsing company can't just sell its useful assets to a subsidiary or affiliate, without that sale being taken into account in terms of the money divvied up between the creditors.

What does it all mean?

There are quite a lot of different implications even just within the rules applied to the insolvency process, which is of course a crucial time for creditors - but the main point is that, unlike in the past, corporate insolvency might no longer mean that you've lost your chance to recover what you are owed.

Instead, the new legislation combined means insolvency practitioners will have to consult you on how much they can take as their fee; collapsing companies can no longer sell valuable assets out from under you, without you feeling the benefit; and if misconduct led to the insolvency, you might be able to make the offending director pay you personally for what you are owed.

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Sources:

https://www.gov.uk/government/news/changes-to-insolvency-legislation-enacted

https://www.gov.uk/government/news/cleaning-up-pre-packs

Image Insolvency by LendingMemo.com is licensed under CC BY 2.0

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