VARs offered rescue remedy
Changes to insolvency rules aim to simplify process for struggling companies
New government rules that give failing businesses a much-needed lifeline came into effect last week, which will be good news for the channel, according to insolvency experts.
The Corporate Insolvency rules, part of the Enterprise Act 2002, are designed to make the insolvency process "faster, fairer and more focused on rescue".
The changes also mean that official bodies such as the Inland Revenue and Customs & Excise will give up their preferential rights to recover unpaid taxes ahead of unsecured creditors.
According to the Department of Trade and Industry (DTI), the rules will cut bureaucracy by providing clear time limits and preventing administrative receivers acting on behalf of one major creditor.
Instead they will ensure that the interests of all creditors are taken into account.
DTI minister Gerry Sutcliffe said: "These measures should promote a 'rescue culture' and help more firms to survive when they face financial difficulties.
"And when it is not possible to save a company, these changes are designed to provide a better deal for unsecured creditors."
Last week Ingram Micro said it would take a $20m charge after Micro Warehouse filed for Chapter 11 bankruptcy.
Nitin Joshi, partner at insolvency specialist PKF, said: "The measures mean that there are more tools available to resellers when they are in difficulties. It gives more options to channel businesses to save themselves."
Eddie Pacey, director of credit at Bell Microproducts Europe, said: "The Crown no longer has preference, which means there will be fewer instances of Customs & Excise winding up companies because they are preferential creditors.
"Banks may be willing to provide firms with more money if they have a little more security against a loan.
"This will certainly open up the playing field and give struggling businesses more of an opportunity to save themselves."
Mark Abrahams, director of The Channel Surgery, said: "The government is making administration available to all; in the past it has been too expensive.
"These rules will allow VARs to remodel their businesses and will also buy them time to look at new opportunities."
CHANGES INCLUDE:
- Introducing routes into administration without court orders for floating charge holders, companies and their directors, removing bureaucracy and providing clear time limits.
- Restrictions on the use of administrative receivers, where a single secured creditor has effective control. Instead, the interests of all creditors must be taken into account when a company goes into administration.
- Inland Revenue and Customs & Excise give up their preferential rights to recover unpaid taxes ahead of unsecured creditors.