Administration fees courting controversy

Andrew Walker, partner in the corporate recovery team at Sheffield law firm Irwin Mitchell.
Andrew Walker, partner in the corporate recovery team at Sheffield law firm Irwin Mitchell.
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Companies which could have been rescued face the prospect of closure and unnecessary job losses because of a Government refusal to introduce new laws, according to R3, the trade body that represents more than 300 insolvency practitioners in Yorkshire.

R3 says recent court cases have added to the financial burden facing administrators when they are called in to rescue a company, making it less economic in some cases.

In the past, administrators were liable for the trading costs like wages, rent, rates and new supplies that followed their appointment, but new court judgments mean they may also be liable to meet other rent and pensions obligations of the collapsed company.

R3 wants new laws that clearly state what charges administrators are liable to pay.

Yorkshire chairman and Irwin Mitchell partner Andrew Walker said: “These court rulings and the continued uncertainty has had an unhelpful impact on the UK’s rescue culture, with far reaching, adverse consequences for the UK economy.

“Tinkering with the existing priority system makes it harder to bail out stricken businesses and means other creditors lose out. The Government is aware of the problem but seems to be unprepared to act.

“It has huge consequences on the ability to rescue businesses, the lending culture, and returns to unsecured creditors. The extension of the scope of what is an administration expense is bound to make lenders more sceptical about the value of their security and hence their willingness to lend to certain businesses.”