The New Insolvency Regime

In September 2003, the insolvency provisions of the Enterprise Act 2002 came into force, bringing in a new regime for dealing with insolvencies.

The main features of the new rules are:

  • a streamlined procedure for putting a company into administration;
  • restrictions on the appointment of administrative receivers by secured debtors;
  • the abolition of Crown preference in a distribution;
  • a system which is less dependent on the court to make decisions;
  • the "ring fencing" of part of the assets realised under floating charges so they can be made available for the creditors.

Compared with the old regime, the new system greatly increases the attractiveness of using administration and permits three different methods by which a company can be put into administration. The administrator will have to present proposals to the company within eight weeks of being appointed and the administration will end in a year unless agreed or extended by the court.

The aim is to ensure that more companies that are put into administration survive, rather than go into liquidation.

The abolition of Crown preference, whilst welcome in principle, may make the Revenue or Customs take a harder line with some failing companies and it remains to be seen whether this operates to the benefit of businesses in financial difficulties. What is essential for directors of companies in difficulty and for individuals with debt problems is that they take advice as soon as possible.
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The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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