Revenue loses place at front of debt queue

New rules on corporate insolvency, designed to make it 'faster, fairer and focussed on rescue', come into force today (Mon 15 Sept). The changes, contained in the Enterprise Act 2002, will also abolish the Crown's preferential claim, which according to the DTI, would benefit unsecured creditors, many of whom are small businesses.

The changes include:

• Aims to make administration more efficient and effective - by introducing routes into administration without court orders for floating charge holders, companies and their directors, removing bureaucracy and providing clear time limits. This, it claims, will help the rescue of viable companies and achieve better results for the creditors of companies that cannot be saved.
  
• Restriction on the use of administrative receivers - where a single secured creditor has effective control. Instead, the interests of all creditors must be taken into account when a company goes into administration.
  
• Inland Revenue and Customs and Excise are to give up their preferential rights to recover unpaid taxes ahead of unsecured creditors. In companies with floating charges created on or after 15 September 2003, a prescribed part of the funds available to the holders of such charges (typically banks) will be set aside for the benefit of the unsecured creditors, many of whom could be small firms. In all other cases the benefit of the abolition will flow automatically to unsecured creditors.

DTI Minister, Gerry Sutcliffe, said: "We want insolvency to be fast, fair and focussed on rescue. These new measures should help to promote a 'rescue culture' and help more companies survive when they get into financial difficulties. When it is not possible to save a company, these changes are designed to provide a better deal for unsecured creditors, many of whom are small firms."

Stephen Alambritis of the Federation of Small Businesses said: "The FSB lobbied hard for the abolition of Crown Preference and we are delighted that the Government has acted to ensure that small businesses get access to money they're owed. The new proposals will also play a key role in providing a rescue package for those small firms that find themselves in financial difficulty."

Economic Secretary to the Treasury, John Healey, said: "A modern and flexible insolvency regime is essential to promoting enterprise. The Insolvency Provisions of the Enterprise Act are aimed at promoting responsible risk taking and removing the stigma associated with bankruptcy, thus reducing entrepreneurs' fear of failure. Though businesses may occasionally fail in a competitive environment, viable businesses should not be allowed to fail unnecessarily. These provisions will help foster the entrepreneurial culture in the UK which we need. Removal of the Crown's preferential rights will also bring real benefits to unsecured creditors - especially small businesses - when trying to recover money."

The Enterprise Act received Royal Assent on 7 November 2002. It covers a range of measures which the Government intends will enhance enterprise through strengthening the UK's competition law framework, transforming our approach to bankruptcy and corporate rescue, and empowering consumers.

The provisions relating to individual insolvency and the financial regime of The Insolvency Service will come into force on 1 April 2004. The provisions relating to the powers of a trustee in bankruptcy come into force on 15 September 2003.