Commentary: Rescue plan for walking wounded

There were 80,000 insolvencies in the UK last year, representing a personal bankruptcy or company collapse every 90 seconds. The accountancy firm Coopers & Lybrand predicts that the same record number will fail in 1993, and it makes a compelling case for some changes in company law that would curb commercial fatalities.

Certainly many of the companies that collapsed last year could never have been saved. In some cases, too, receivership eventually allows both assets and employees to work without an encumbrance of debt or poor top management. But in general, we are still too far away from a 'rescue culture'. In too many cases perfectly viable companies are going to the wall because rescue is too costly or legally difficult. The British way, says Coopers, is to 'bayonet the wounded'. As owner of Britain's biggest firm of receivers, Cork Gully, Coopers should know.

The 1986 Insolvency Act, which enshrines the system for dealing with people and companies that can no longer pay their bills, has failed in part because the administration procedure has not caught on. This was meant to be Britain's answer to America's Chapter 11, buying firms time to trade their way back to health.

The problem is that administration is a lengthy and costly court-driven process, putting it out of reach of many small businesses and tempting banks to place companies in receivership. This is a far cheaper process, but it usually kills the company. Directors also dislike administrations because the accountants running them can dismiss them with little redress.

Coopers points to other holes in the 1986 Act. A cheap, simple method of allowing firms to reach an orderly settlement with their creditors, the 'company voluntary arrangement,' is still rendered unusable by legal red tape. And many companies are liquidated simply through inertia, for example when the Inland Revenue issues a winding-up order without first sending investigating accountants into a troubled company.

These failings and others could be remedied in mid-November when Neil Hamilton, corporate affairs minister, announces the results of his review of company law. This leisurely timetable may save companies in the next recession, but it will be too late for many. By the time Mr Hamilton makes his announcement, another 73,000 firms and individuals will probably have gone bust.