Business Recovery and Insolvency Practitioners

NEWS: Enterprise Act Update

Added: 13/12/2004

The corporate insolvency reforms contained within the Enterprise Act 2002 came into force on 15th September 2003. The aim of these provisions was primarily to facilitate the rescue of viable companies and in circumstances where this is not possible, to facilitate a better return to creditors as a whole.

The Act intends to achieve this goal by restricting the use of Administrative Receiverships (where a single secured creditor I.e. a bank, has effective control) and encouraging companies to use a new streamlined administration procedure. September 15th 2003 also saw the abolishment of the Crown’s preferential rights to recover unpaid taxes ahead of other creditors, a move which was anticipated to bring real benefits to creditors.

At the time of their introduction, there was much speculation within the insolvency profession upon the implications of the reforms. A year on, what has actually been the effect of the Enterprise Act?

Here at Poppleton & Appleby, it was anticipated that we would witness a drastic change in the attitude of Crown departments when dealing with companies who had fallen into arrears in respect of their VAT or PAYE liabilities. The loss of preferential status was clearly going to have a significant and detrimental affect upon the Crown’s revenue, and we expected to witness an aggressive change in their ‘credit control’ policy.

From the cases dealt with over the past year however, it would appear that the Crown’s pre-insolvency attitude to tax arrears has changed very little; although this is perhaps merely a delayed reaction and companies with tax arrears should never be complacent.

In summary, the short term effect of the abolishment of the Crown’s preferential rights has been that funds which ordinarily would have been available for the Crown, are now available for secured creditors. Unsecured creditors are not, as of yet, benefiting from this measure. In the future however, in cases where a bank’s security over a company’s assets is registered on or after 15th September 2003, a proportion of the company’s free assets will be reserved for the unsecured creditors. The result of which will be more dividend cheques being received by unsecured creditors more frequently.

The new out of Court Administration procedure has proved to be a useful new tool in the Insolvency process. Lower costs to place a company into Administration and the ability for an Administrator to deal with a company’s assets and business without the need to attain prior permission from the Court or creditors, means that a more dynamic and flexible approach can be employed by the appointed Insolvency Practitioner.

We feel that in many cases the Post Enterprise Act Administration regime has the potential to offer companies who are facing financial obstacles a quick and effective solution to their problems. But as with all insolvency scenarios, we would stress that the sooner problems are recognised and professional advice sought, the better the outcome will be for all stakeholders.

If there is any aspect of insolvency you would like to discuss, any member of our team would be happy to answer your queries.

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