View from City Road: Heseltine moves fast but leaves a problem

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The Independent Online
The Government is to be congratulated for moving so quickly to rectify the Paramount Airways Court of Appeal ruling, which threatened to double the number of jobs lost as a result of companies getting into trouble.

The judgment was handed down on 22 February. The fact that the Emergency Bill announced by Michael Heseltine will become law so soon after the Independent revealed the crisis the judgment had caused shows an impressive turn of speed. If only all legislation could be this rapid.

Mr Heseltine's intervention leaves a number of serious problems, however. In essence, it preserves the 'rescue culture' - the bias towards keeping troubled companies going - from the date of his announcement, 14 March. But it ducks the issue of employees' claims before that date.

Receivers going into insolvent companies will now be confident that they can keep employees without taking over their contracts of employment. But what happens about employees laid off by administrators and receivers before the cut-off date?

At first sight, this might appear to be a blow for workers' rights. Workforces that were kept on by administrators and then laid off when no buyer for the business emerged can now dust off their contracts of employment and send in their claims to the administrators concerned. They would then be greeted by the spectacle of the administrators going to the other creditors - usually the banks - to reclaim the money owed to the workers.

In reality, there is a serious threat that the main beneficiaries would be those most adept at working the court system - such as discredited directors with juicy incentivised contracts.

It is possible the politicians will be happy to let the insolvency practitioners stew in their own juice. After all, there are only about 2,000 licensed insolvency specialists - hardly an electoral force - and they rank somewhere close to journalists and politicians in the public's affections.

Insolvency practitioners have also hit the headlines with the huge fees they have earned during the recession. Maxwell-related fees alone are poised to top pounds 100m, for example. So there is a possibility the Government will let the insolvency specialists fend for themselves. That would be a mistake, as the main winners would be the lawyers conducting the actions.

An amendment to the Bill on Monday to stop this would be a sensible quick fix, and would delight the insolvency profession, of course. It would also allow people to get back to dealing sensibly with bust companies instead of worrying about personal liability in the courts.

Mr Heseltine is likely to shy away from that, so the best course is to press on as fast as possible to the Lords with an appeal over Paramount.

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