Wednesday, 4 May 2011

Businesses and Insolvency

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In these troubled times it is not just consumers who are experiencing financial difficulties. Many businesses are struggling for a variety of reasons in these difficult economic conditions. 

An effective recovery is dependent on businesses surviving and prospering. So the question needs to be asked if more could be done to protect a business from insolvency and help it to recover and find a future.

Currently, suppliers of services essential to the business can make demands for excessive premiums for their services, with the penalty that they will withdraw their services altogether, potentially making continuation of business difficult, if not impossible.

R3

R3, The Association of Business Recovery Professionals campaigns to protect and rescue viable businesses.

  • R3’s Holding Rescue to Ransom campaign focuses on the unreasonable action taken by suppliers, which often prevents business rescue during insolvency.
  • At a time when corporate insolvency remains high on the agenda it is important that the insolvency regime does all it can to rescue viable businesses.
  • Currently the ability of the insolvency profession to rescue viable businesses is being undermined by the actions of certain suppliers.
  • As the law currently exists, utility suppliers must continue to supply to a business in the event of insolvency, however there is nothing to prevent them changing their terms of supply, increasing tariffs or demanding one off ransom payments.
  • The Insolvency Act dates back to 1986 and thus needs modernisation. Currently only utility suppliers are deemed ‘essential’ to the everyday functioning of businesses, however, the business environment is very different today. 
  • R3 is calling for section 233 of the Insolvency Act 1986 to include information technology services, computer software and accounting software to reflect the prominence of that technology in business operations.
  • At the moment suppliers vital to the everyday operation of a business such as IT services are able to demand extortionate ransom payments for continued supply or withdraw their services.

If this type of behaviour were outlawed, research by R3 and research agency ComRes suggest that likely impacts would include: 

  •         In excess of 2,000 business rescues a year
  •         Over 14% fewer liquidations
  •         A 22% decline in the number of pre-packs
  •         Greater returns to creditors.

If you are a involved in a business facing any of these problems, or have experience of this in thepast, please join the Holding to Rescue to Ransom campaign and add to the discussion by commenting below.

 

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