COMMENT : `Rescue culture' in need of a new lifeboat

Most people - reasonably in some respects - think of the insolvency profession as a disreputable one, high earning corporate leeches feeding off the corpses of British industry. A lot of the time, however, the perpetual bad press is undeserved; the administrators who rescued Barings and sold it on, saving all depositors' money and much of the City's reputation with it, all within 10 days, deserve some credit for a job well done.

The Law Lords seemed to have the former view in mind when they dropped yesterday's bombshell. Their ruling in the Paramount case (nothing to do with Hollywood) opens the way for an estimated £2bn in claims from employees sacked by receivers in cases going back to 1986.

When the Paramount problem first appeared last spring, a rare consensus sprang up between the Government, Labour, management and unions, that emergency legislation was needed to overcome what was seen as a clear anomaly in the law. To his credit, Michael Heseltine, President of the Board of Trade, put together a Bill and passed it within weeks of the problem emerging.

But he rejected pleas from the insolvency profession to make his Bill retrospective. This meant that although receivers could continue in their work, after March 1994, without having to sack entire workforces within the legislation's two-week cut off period, they would still face claims for compensation dating back to 1986, when the last Insolvency Act was passed.

In a nutshell, the Paramount ruling means that receivers have to sack anyone within a company in receivership in the first two weeks, or risk taking on all their claims for compensation, pension rights and everything else. The possibility of this quirk in the legislation had been noticed when the Act was going through Parliament but a test case in 1987 had suggested that receivers could simply write to employees stating what new terms they were being employed under, until the bust company was either sold on or liquidated.

The test case was successfully challenged last year by employees of Paramount Airways, an obscure aviation company that went into administration in1989. The ruling opened a Pandora's Box of potential claims against Britain's company rescuers. Former employees were not slow to spot this.

A number of former directors of Olympia & York, the Reichmann Brothers company that built Canary Wharf in London's Docklands, lodged a claim totalling over £10m against O&Y's administrators Ernst & Young.

More worryingly, claims can be registered personally against receivers. All receivers are personally appointed, and therefore personally face much of the retrospective claim.As the CBI warned last year, the potential for claims is enough to bankrupt some of the top six accountancy firms. Employees sacked before last May's Bill was passed must be licking their lips.

The implications range from the sublime to the ridiculous. In theory the partners of Ernst & Young would not be able to act as administrators for Barings for with the threat of hundreds of millions of pounds of claims hanging over them they would hardly stand up in court and agree they were fit and proper to be insolvency practictioners. More absurd still, the most likely beneficiaries are those with the money and know- how to pursue the claim - in other words, the directors and executives responsible for the insolvency in the first place.

Much depends on whether professional indemnity insurance extends to covering these claims. The picture here is unclear, and will require further court cases to clarify it. The aim of Parliament in passing the 1986 Act was to foster a "rescue culture" for troubled British companies, not bankrupt the very company rescuers who would carry this out.

The Law Lords' decision may be a correct reading of the Act. In its practical effects, however, the ruling is stark staring mad. Now is the time for some common sense. Mr Heseltine should complete the job he started so well last spring, and make his emergency Bill retrospective. Otherwise it is adios for the insolvency experts who saved Canary Wharf, Barings, Leyland Daf and thousands of others.

No win for Sir Richard

A personal tragedy is slowly unfolding for Sir Richard Greenbury, chairman of Marks & Spencer and of the executive pay committee that bears his name. As he may well have discovered on his business promotion trip to Israel with the Prime Minister, it is increasingly obvious that he cannot win on the pay issue.

The committee is working hard and by City and corporate standards, it is likely to come up with some quite radical proposals; full disclosure of directors' pay, a clampdown on rewards for failure through excessively generous contracts and a requirement to link share options and bonuses to properly thought out performance measures.

There may, just possibly, be a proposal for legislation to back increased disclosure, and the committee will probably try to tart up the image of remuneration committees, perhaps by urging an annual report from the chairman or even his election by shareholders. All this may be taken up by the Stock Exchange and incorporated in its listing rules.

But it is clear from what has seeped out so far that the committee is sticking rigidly to a brief of setting out best practice; its objective is to publish a benchmark for others to use. By definition, that means it is working within the framework set by the best-run companies and investing institutions.

The final document will be no surprise, for example, to Reuters, which has one of the most advanced performance-related share schemes, even if some less scrupulous companies find it hard to swallow the new rulebook whole.

But political and general public expectations have risen way beyond this kind of result. To satisfy them, Sir Richard would have to tear up the work his committee is doing and produce a humdinger of a report slamming greedy bosses, tearing into the utilities and banning boardroom excess, whatever that means. Forced to choose between political and business demands, it is a sure bet Sir Richard will opt for the approval of his business peers, not backbenchers and newspapers, and that he will produce a working document containing nothing startlingly new.

You can already hear the accusations of whitewash and bosses looking after their own kind. That, of course, is the risk of volunteering your services to get politicians off a hook. Sir Richard is going to end up on the sharp end of it, and deeply fed up about it he is too.

Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Sport
The Pipes and Drums of The Scottish Regiments perform during the Opening Ceremony for the Glasgow 2014 Commonwealth Games at Celtic Park on July 23, 2014 in Glasgow, Scotland.
Commonwealth GamesThe actor encouraged the one billion viewers of the event to donate to the children's charity
Sport
Karen Dunbar performs
Entertainers showcase local wit, talent and irrepressible spirit
Sport
Members of the Scotland deleagtion walk past during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
PROMOTED VIDEO
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
Life and Style
fashion Designs are part of feminist art project by a British student
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
News
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
News
i100
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game