Last week, the Small Business, Enterprise and Employment Act 2015 gained royal assent, meaning broadly speaking, the various measures that have already been outlined by BIS, the Insolvency Service and other government departments should be brought into law without any major changes.
What does this mean for creditors? Actually there are some broad sweeping measures, and some more specific ones, which should combine to tip the balance more fairly in the direction of creditors.
Tipping the Balance
That by no means gives creditors complete power, but it should at least do something to overcome the unfairness we've seen in recent years due to pre-pack administrations, dodgy director dealings, and insolvency practitioners racking up seemingly limitless fees for closing down a company that owes you money.
We'll look at each issue in more detail, but in general here are some of the measures due to be introduced:
- In pre-pack administrations, companies can no longer sell out their assets to connected parties, without creditors feeling the benefit of any funds raised.
- Insolvency practitioners must fix their fees upfront, and creditors have a say on any increases to those fees made at a later date.
- Companies can no longer act as directors of other companies (with some minor exceptions) so you always know who's pulling the strings.
- Dodgy dealing by directors can make them personally liable to pay creditors for any losses that arise from the director's misconduct.
- Big brands and PLCs must report their payment practices, so suppliers can see how fair or unfair their payment terms are, and how promptly they pay.
- Persistent failure to make this information public could even become a criminal offence.
After several years of half-baked attempts to improve payment practices through utterly powerless measures (such as the totally voluntary Prompt Payment Code) it finally feels as if the government might have struck the right balance.
The Small Business Act puts sensible limits on insolvency practitioners' fees, and introduces new regulations for the industry; it also tightens the rules on transferring assets out of troubled companies to the detriment of creditors, and makes directors personally financially liable for their misconduct.
But it doesn't handcuff creditors into taking action when they don't want to, as was the concern with previous proposals to make it mandatory to claim penalty fees and statutory interest on overdue invoices.
Matthew Hancock, business minister, said:
"The government has backed small businesses like never before to build a Britain where entrepreneurs can break the mould and take on the world. Coming from a small business background myself, I know first-hand how cumbersome bureaucracy can stifle your ambitions to grow."
"The Small Business Act is the first set of laws specifically to help level the playing field for small business. There really has never been a better time to start and grow a business in the UK."
With the current economic climate, that's perhaps a slightly optimistic claim; however, it does seem as though this Act has been written with a good level of understanding of the challenges small businesses face, and how to overcome these.
Best of all, the sanctions and red tape introduced in the Act apply to big brands, dodgy directors, insolvency practitioners, but generally don't add to small businesses' admin burden - leaving them (hopefully) free to thrive in a new and fairer payment and insolvency landscape.
Over 150 Years Of Industry Experience
Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.
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