Insolvency rule change boosts 'rescue culture'

New insolvency rules will come into force tomorrow, making it easier for companies to go through administration.

New insolvency rules will come into force tomorrow, making it easier for companies to go through administration.

The insolvency section of the Enterprise Act will allow many company directors to place their businesses in administration without going through the courts. The rules will also lay down stricter limits on the time companies can spend in administration.

The news will be a mixed blessing for company creditors. The UK tax authorities will now no longer be first in line for repayments from a company that goes bust. Instead, they will be ranked with other creditors. Funds will be created to pay cash owed to unsecured creditors who before had few rights to debtors' assets. But the use of administrative receivership, where secured creditors have enhanced rights, will be restricted.

Gerry Sutcliffe, the competition minister, said: "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, an official at the Federation of Small Businesses, said: "The new proposals will play a key role in providing a rescue package for those small firms ... in financial difficulty."