New 'fast and fair' insolvency rules introduced

New rules on corporate insolvency, designed to make it faster, fairer and focused on rescue, come into force today.

The changes, contained in the Enterprise Act 2002, will also abolish the Crowns preferential claim - benefiting unsecured creditors, many of whom are small businesses.

The changes include making administration more efficient and effective, removing bureaucracy and providing clear time limits.

Restriction on the use of administrative receivers - where a single secured creditor has effective control – will be introduced. Instead, the interests of all creditors must be taken into account when a company goes into administration.

Inland Revenue and Customs and Excise will also to give up their preferential rights to recover unpaid taxes ahead of unsecured creditors.

DTI Minister, Gerry Sutcliffe, said: "We want insolvency to be fast, fair and focussed on rescue. These new measures should help to promote a 'rescue culture' and help more companies survive when they get into financial difficulties. When it is not possible to save a company, these changes are designed to provide a better deal for unsecured creditors, many of whom are small firms."

Stephen Alambritis of the Federation of Small Businesses said he was delighted that the government had acted to ensure that "small businesses get access to money they're owed".

He added: "The new proposals will also play a key role in providing a rescue package for those small firms that find themselves in financial difficulty."

(gmcg)