We have long argued for the abolition of the preferential status of the Crown whilst retaining the preferential status of employees. It is not that we believe that the amount of funds to the Exchequer should be reduced, but rather that the loss of preferential status would change the behaviour of the Inland Revenue and Customs & Excise.
Frequently a smaller company's larger creditors are the Inland Revenue and Customs & Excise and often these debts are allowed to build up. The Inland Revenue in particular allows PAYE to remain unpaid, sometimes for nearly a year. At a time when businesses are being encouraged to pay their debts on time we cannot understand why the two main government collectors of Revenue have still not improved their collection procedures sufficiently to avoid this situation.
We beleive that not allowing such debts to build up will increase the amounts collected and should help the debtor company. The Inland Revenue and Customs & Excise are in a position to be able to provide troubled companies with advice at an early stage, for example they could insist that a company seek the advice of an insolvency practitioner.
(In its submission PKF described as 'interesting' the working party's suggestion for a 'single gateway' - where all insolvent firms would have no choice but to be involved in a court procedure. Alexander continues:)
We do not agree with the working party's view that the current procedures are too complex. The problems of companies and businesses are varied and complex and it is important to have a range of options from which to choose the right solution.
We belive that consideration should be given to increasing the power of the court at a winding up hearing to order a report stating whether the company is willing to propose a voluntary arrangement. Similarly at meetings of creditors and shareholders summoned under the Insolvency Act 1986 to place a company into voluntary liquidation and appoint a liquidator, the directors could be required to state that they had considered a voluntary arrangement and provide a statement to creditors why they, having consulted an insolvency practitioner, had concluded that this was not feasible.
A more radical approach would be to permit the directors to instigate a moratorium for, say a week, in order to take advice from an insolvency practitioner who would consider all the options and advise on the appropriate action. There would need to be severe penalties for the directors if the assets were dissipated in this time.
(PKF also cited lack of awareness amongst directors and their advisors of the options open to them when they get into financial difficulty as a key reason for why more companies are not saved or ceditors lose more than they need to. Alexander comments:)'We believe that the lack of awareness of the procedures, rather than the procedures themselves, is the reason that more companies do not utilise administration or company voluntary arrangements. A company's general accountant and legal advisors are unlikely to have more than a scanty knowledge of the insolvency and rescue procedures available and this needs to be addressed by their professional bodies. In addition Business Links and other advisors need to be educated in the available options and when companies should seek help.'
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