January 27, 2014

Accusations towards ministers of dropping insolvency law review

Ministers have been accused of “quietly dropping” an extensive review of the insolvency laws covering high-street retailers by the shadow business secretary Chuka Umunna. Mr Umunna demanded an update on progress made, given the collapse of both Blockbuster and Barratts in November along with promises made last December by the Business Secretary Vince Cable.

Ministers were also asked when a report on the circumstances surrounding the demise of electrical retailer Comet would be completed, since no action has yet been taken a year after Mr Cable promised to review the way insolvency works after having seen how the well-known brand fell. Now in liquidation, the Comet brand is still held by administrators and, at the time, nearly 6,000 staff lost their jobs despite the chain’s owner, OpCapita recouping almost £117m and retaining its lucrative warranties business. A spokesperson for the Department of Business, Innovation & Skills (BIS) said in response that the Insolvency Service was leading the investigation into Comet and that it was still “proceeding”.

Some critics of the insolvency laws have demanded a review of legislation allowing “pre-packs”, where the business and assets of a company (or such of the assets as the buyer may want) are sold to a buyer (often the existing management or investors) immediately the company enters administration. While pre-packs have their place when properly used, they are criticised as lacking transparency and accountability, with management being allowed to ‘asset strip’ the company and ditch debt. Company voluntary arrangements (CVAs) have also come into the firing line, when used to engineer the dumping of stores that are unprofitable or underperforming, and the saving of stores in more profitable locations.

A recent report by the Adam Smith Institute has claimed that economy may be being held back by up to 108,000 zombie companies which are only still going because if the ongoing low interest rates. The report says these companies threaten to cause a “lost decade” of economic stagnation. Meanwhile, the latest research from Experian has shown that around a quarter of small and medium-sized businesses (SMEs) have used personal finance funding, such as re-mortgaging, to shore up their businesses, which has left many at risk of bankruptcy.

It is always recommended that businesses who may be at risk of insolvency should seek professional advice to help them find a workable solution to the difficulties they may be experiencing. At Royds we can provide professional guidance on many insolvency matters.

For more information, please visit or contact Stewart Wilkinson or Angela Stallard.

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