INSOLVENCY SERVICE
News Release (Ins/Coms/05) issued by COI News Distribution Service
on 24 April 2009
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 proposals:
* 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 2006.
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 administrations.
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
7. Media enquiries should be directed to: Lorna Dennis,
Communications Manager, 020 7637 6279 or Ade Daramy Press Officer
on 020 7596 6187 at The Insolvency Service, 21 Bloomsbury Street,
London, WC1B 3QW.