Rescue plans could inhibit SME lending

Government consultation on rescue finance reaches conclusion as channel players remain wary of proposals

White: these proposals fundamentally disincentivise lenders

As the Insolvency Service’s consultation on access to rescue finance draws to a close today, channel players have claimed the proposals could hamper small business lending.

The Encouraging Company Rescue consultation sets out six proposals designed to make it easier to obtain rescue finance, regardless of administration or Company Voluntary Arrangements (CVA). Proposals A and B cover moratoriums protecting insolvent firms from creditor action.

The former proposes extending small firms’ 28 day moratorium to larger firms, while the latter suggests introducing court-sanctioned protection for three months.

Proposal C considers making rescue finance a “superpriority” ahead of other administration expenses. Proposals D and E tackle ways to increase the availability of secured charges for insolvent firms, while F proposes the “cessation of asset-based lending arrangements” once a company has succumbed to administration or CVA.

Pat McFadden MP, minister for Business, Innovation and Skills (BIS), said: “The measures detailed in this consultation are intended to give struggling, but viable, companies a greater chance.”

Philip White, managing director of leasing specialist Syscap, said: “These proposals reduce lenders’ security and fundamentally disincentivise them.”

White claimed that the Government could be better served by extending the Small Firms Loan Guarantee Scheme or taking greater advantage of the European Investment Bank.

“When a firm is in administration, one of the primary objectives is mitigating creditors’ losses, where as the US Chapter 11 is about exhausting every avenue,” he said.

Matthew Woolley, chairman of trade body ITACS, said: “The UK system is not designed to encourage recovery and an idea like Chapter 11 would be superb because it would at least encourage people to try.”