Insolvency trade body R3 has renewed calls for the Government to clarify rules affecting companies that go into administration.
The latest calls came after a survey of R3’s members found that almost three out of 10 companies that might have traded on are now the subject of pre-pack sale deals or liquidated because of a new legal ruling that rents and pensions should now be included among the trading costs an administrator must meet.
Yorkshire R3 committee member Gareth Self, an insolvency practitioner within the P&A Group in Sheffield, said: “Continued uncertainty has had an unhelpful impact on the UK’s rescue culture, with far-reaching, adverse consequences for the UK economy.
“If insolvency practitioners are not sure about how much it is going to cost to trade a business they may have to make the decision to close it, meaning creditors lose out and jobs are put at risk. The Government is aware of the problem but is being slow to act.
“It has huge consequences on the ability to rescue businesses, the lending culture and returns to unsecured creditors. Paying out an undetermined range of costs as a priority makes deciding to risk trading a business significantly more expensive and, in many cases, impossible.
“A decision on ‘administration expenses’ should not be left up to judicial discretion on a case-by-case basis, but needs to be laid out clearly in legislation.” The call from R3 coincides with a warning from a Sheffield-based finance specialist that fears about what happens when companies go into administration could be causing some owners to leave it too late to save their businesses.
Phil Meekin, from business turnaround and insolvency specialist Wilson Field, says: “Many people see headlines about large employers ‘going into administration’ and immediately assume the worst.
“It all sounds pretty grim and terminal, and some of it is - particularly if business owners fail to take early advice when they face financial difficulty - but the insolvency industry does much more than ‘bust’ companies.
“Administration is a powerful tool if used properly. While a company is in administration it is in a protective bubble, safe from potential actions taken by creditors, such as bailiffs seizing essential equipment, until a solution can be found.”