The Bill will modify Company Voluntary Arrangements (CVAs) and allow small businesses to obtain a stay on creditor action for a limited period in order to put a rescue plan to creditors for approval.
However, Bloom warns that other aspects of the Bill may undermine the rescue culture this legislation is seeking to promote. The Bill includes a power for the Secretary of State to force all secured lenders to give written notice before appointing receivers.Bloom believes the notice period could put the business in limbo and allow unscrupulous directors to spirit away assets:
'The issue of a warning notice will result in a period of paralysis during which directors can do nothing and there is no insolvency office holder to control the business. This is likely to militate against a rescue of the business.
The longer the statutory notice period, the longer the period of paralysis will be.
Also, unscrupulous directors might use the notice period to appropriate or conceal assets. The latter danger might be reduced if administrative receivers were given the right to take action against the directors for the recovery of property.'
Bloom voices SPI's concern at the proposal that people other than licensed insolvency practitioners (IPs) would be permitted to supervise CVAs:
'There is a risk that the definition 'IP' would be applied to those only qualified to practice one insolvency procedure. They could well appear far more qualified than is the case, recommending a perhaps unsuitable procedure from an apparently impartial position. Businesses would be placed at risk and creditors could lose out. Directors should seek advice from licenced IPs who are capable of advising on all insolvency and informal options.
'We thoroughly approve of these matters being addressed, but the details must be clearly thought out in the context of wider insolvency developments, not as a knee jerk reaction to the need for reform.'
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