Insolvent? Don't worry, it's just a rite of passage

A Business Rescues Act would rescue the image of insolvency as well as more companies, writes
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The Independent Online
For all the similarities between British and US business cultures, there is at least one important difference: the attitude to failure. It is often commented that while we tend to look upon the owner of a collapsed business as some sort of crook (even if no fraud or the like is involved), the Americans regard such episodes as rites of passage.

As a consequence, they have the Chapter 11 bankruptcy protection procedure - and we have a rather more complex situation that might appear to benefit insolvency specialists more than companies and their creditors.

It is not that there is a lack of interest on this side of the Atlantic in rescuing troubled companies. The mid-1980s saw an attempt to ape parts of Chapter 11 by introducing the concept of administration - designed to help insolvency practitioners save at least part of the business - and now the Government is proposing a further refinement - a 28-day moratorium on debt for companies facing bankruptcy.

The Society of Practitioners of Insolvency believes this is basically a good idea, but warns that it might give rogue directors too much scope to bleed a company of its remaining assets.

However, John Alexander, head of corporate recovery at accountants Pannell Kerr Forster, has another suggestion. He feels that take-up of the company voluntary arrangement procedure - basically a private deal between a company and its creditors - is low because directors are reluctant to enter into an insolvency situation. In other words, it is that old suspicion of failure syndrome.

Such a perception problem could be dealt with by including all the rescue procedures - CVAs, administrations and administrative receiverships for companies, partnership voluntary arrangements and administrations and individual voluntary arrangements - in a Business Rescues Act, Mr Alexander believes.

While admitting that the Government is unlikely to take the parliamentary time to merely deal with perceptions, he thinks such a "respray" could do much to bring about a more positive view of insolvency. Because it is not just the directors that distrust the procedure. "The experience of most creditors is that when it comes to insolvency they end up losing money, which leads to a lack of confidence in insolvency," he says.

The submission on the consultative document "Revised proposals for a new Company Voluntary Arrangement Procedure" which he made just ahead of the 31 July deadline also highlighted the need for increased powers for nominees - the insolvency practitioners who supervise the deal-making. He pointed out that, contrary to common belief, they do not have the authority to protect the interests and control the activities of the company and its directors.

"We believe that the nominee should either be given specified powers or just provide advice on the form of the proposal for a CVA and have no further role in monitoring the business," he says.

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