The changes are derived from the Enterprise Act, passed on 7th November last year, and represent the third wave of reform instigated by the Act.
In April this year the first wave gave the Office of Fair Trading (OFT) elevated status as an independent statutory body, and a greater role in ensuring that markets work well to the benefit of all.
The Act took effect with regard to consumer and competition law, the second wave, in June, and now some of the important insolvency provisions will take effect.
According to the Department of Trade and Industry (DTI), the latest changes include:
- Making 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 aims to 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 15th 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 are 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 focused 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 (FSB) added:
"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."
The changes will take effect in two parts. The provisions relating to the powers of a trustee in bankruptcy come into force today.
The provisions relating to individual insolvency and the financial regime of The Insolvency Service will come into force on 1st April 2004.
