Hi guys, That’s me back from my amazing holiday!
Damn! It’s good to get back into the swing of things, however! The weather up here in Scotland is soooooo cold!
I hope i didn’t miss out on too much. I will be looking at all my emails shortly. Thanks for all the support guys. My next post will be on the controversial topic of…. BREXIT!
Here is a little teaser of what I will cover:
The Enterprise Act 2002 reformed insolvency law to provide the legal milieu for the fostering of a rescue culture. Critically evaluate how the new Administration regime was redesigned to assist financially distressed businesses
The reform of administration orders under the Enterprise Act 2002 has gone a long way in aiding companies in financial distress, one which with foresight of the banking crisis of 2007 was very helpful indeed. The Enterprise Act 2002 was designed to facilitate company rescue in order to produce better returns for creditors and “even up the playing field” a bit in respect of the competing interests of creditors. In order to assess how the reform has assisted financial distressed companies, it will be necessary to evaluate three main areas. Firstly, in order to establish why reform is needed, the situation prior to the 2002 Act will be analysed, focusing on the Insolvency Act 1986. Secondly, one will detail what was reformed and what significant changes that have been brought forward as a result. Finally, one will assess how effective the Enterprise Act has been in helping those companies in financial difficulty and whether or not there are any weaknesses and conclude whether said reform was successful in its attempts to assist financially distressed businesses.
The predecessor to the Enterprise Act 2002 was the Insolvency Act 1986 within which the administration process for financially troubled companies was detailed. The Insolvency Act accounted for two procedures to deal with corporate rescue: Administration and Company Voluntary Arrangements (CVA). Armour and Mokal, in their 2004 report on the reform of corporate rescue, clearly outline the reasons as to why the 1986 Act was insufficient to cope with the modern corporate world and our advancing society. The Act itself did not do enough to promote the rescue culture and protect businesses: if a creditor held a relevant floating charge they could stop the process of a petition for administration or a CVA by appointing an Administrative Receiver (AR), highlighting how the law was favourable to individual creditors rather than creditors as a whole or the overall company. This gave a lot of power to secured creditors while other creditors and indeed the company were left hanging by a thread. It was well known that change was needed and promoting the rescue culture was an aim of the Cork Committee in 1982 (one of the main driving forces behind the act Insolvency Act 1986). They believed that “a good modern system of insolvency law should provide a means for preserving viable commercial enterprises capable of making a useful contribution to the economic life of the country”. The system lacked any clarity and answers for, in particular, unsecured creditors, particularly in failing to provide them with adequate maximisation for the debts they were owed. The Cork Committee wanted to offer company directors incentives to opt for administration over other methods available to them. In evaluating the Insolvency Act, it is clear that it has failed to meet what the Cork Committee believed it would. It order to address a lack of clarity and to encourage companies to use the procedures implemented for corporate rescue, it was necessary to reform the law to facilitate better company rescue and produce better returns for creditors.
The Enterprise Act 2002, according to the Accountant in Bankruptcy website, was designed to streamline the company administrative process. This was to be achieved by dealing with the issues which led to the need of reform in the first place – accessibility, flexibility, restriction on administrative receivership and abolishing the Crown’s preferential rights. In order to achieve this commentators including Armour and Mokal detail that this will be achieved by the form of a moratorium enforcing and appointing an administrator, giving control to someone out with the company. Devolving power out with the company allows for a more objective and reasoned approach to administration. Arguably the most significant change to be brought about by the Act is the abolition of Administrative Receiverships in respect of those floating charges created after 15 September 2003 in favour of a new out of court streamlined Administration procedure. With analysis of administrative receivers jobs it can be said that AR’s were only working in the best interests of the creditor who appointed them. Now that this has been abolished and the administrator works on behalf of all, creditors will be more compliant and offer more help if it aids themselves in some way. Under the previous rules, creditors would have had competing interests and consequently would have been working against each other. With creditors pulling in the same direction, this can only help the company stay alive.