Government proposes Red Tape amendments to boost rescue culture

The Government's handling of business insolvencies has always been a hotly debated issue. Over the years there have been a number of changes brought in by The Insolvency Service designed to simplify the process and help support insolvency Practitioners (IPs) working to turn around distressed companies.

Last year the Insolvency Service launched a consultation to generate feedback from within the industry and determine the most efficient methods of reducing unnecessary regulation and simplifying procedures. The results of the consultation have now been confirmed by Business Minister Jenny Willott in the form of several measures that claim to reduce the cost of insolvency procedures and benefit creditors to the tune of £30 million a year.

Upon announcing the changes late last month, Willott said that the government is ultimately aiming to create an environment that facilitates business growth. She said that reducing “burdensome red tape” is one way of doing this.

It is hard to believe that some of these latest proposals have not been introduced earlier. For example, this is the first time IPs have been permitted to communicate with creditors electronically, instead of by posting letters. Simply reducing the time spent waiting for replies to be sent back and forth is likely to speed matters up considerably, and when dealing with a business in administration, time is of the essence if administrators want to give the company the best chance of becoming a turnaround success story for a new owner.

Other moderations include reducing record keeping requirements for IPs and reducing costs of administration handling by removing the requirement to pay out small dividends and instead allowing the money to be used for the wider benefit of creditors.

So far the industry has cautiously welcomed the changes, although many remain hesitant about how they will be implemented and whether or not the Government will now take a step back, presuming it has done enough to improve the sector.

Liz Bingham, president of R3, the insolvency trade body, said: “At first glance, the Government’s proposals are welcome. They are simple, common sense steps that remove several unnecessary hurdles for IPs and businesses to contend with.

She added: “We are very pleased to see that so many of our own proposals, in particular, those that help boost the rescue culture, have made it into the Government’s plans. The proposals will allow IPs to spend more time rescuing businesses instead of form processing.”

It's good to see that the government does not plan on allowing the industry to stagnate, but the changes are likely to create a greater level of speed and urgency in the administration process, making it even more important for distressed business buyers to be on the ball when it comes to building relationships with IPs if they want to boost their chances of success when buying distressed businesses and their assets.



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