The Insolvency Service has announced that new insolvency rules will come in to place from the 6th April 2017, replacing the existing insolvency rules of 1986. The new legislation would include replacing the 28 subsequent amendments to bring in a more efficient insolvency process overall and to both modernise and stabilise the legislation.

This will bring the legislation in line with modern business practices which would include the usage of present day terminology and gender neutral language. Ultimately, the legislation would therefore be presented in a clearer, concise and logical manner for all to interpret.

Plentiful advantages

There would certainly be numerous advantages for having a revised legislation as it would mean that Insolvency Practitioners will be able to use electronic communication methods as opposed to the outdated paper communication methods of times gone by when communicating with creditors.

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A person made bankrupt under the provisions of the Insolvency Act 1986 (“the Act”) has a legal duty to cooperate with the Official Receiver and Trustee in Bankruptcy and is under strict legal duties to disclose the extent of their assets and liabilities. The Acts sets out the penalties for non-compliance; Section 354 clearly states that concealment carries a penalty of fine or imprisonment (or both) and is a criminal offence.

The subject of this cautionary tale, a Mr Goni, was declared bankrupt and actively chose not to disclose to the Official Receiver the true extent of his assets. The Official Receiver sought criminal sanction and found favour with the Courts. Indeed, the Courts went a step further and decided that the Proceeds of Crime Act 2002 applied to the offence and that the Court were entitled to make a Confiscation Order. An Order was granted to the tune of c£2m, that being the value of the assets so concealed and therefore the value of the “benefit” of his criminal activities.

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Around this time in 2015, the International Monetary Fund’s Global Stability report questioned whether there was a sustainable recovery. The economic world being hooked on ultra-low borrowing costs.

Cheap money created to rescue the developed economies since 2008. Seems to have created inflated asset bubbles and due to low borrowing costs companies and countries have been encouraged to load up on debt. Emerging markets (India and Brazil) are in trouble.

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We were recently instructed to advise a business in financial difficulty. It was clearly insolvent and under pressure from creditors, however, there appeared to be value in the core business, built up over 50 years of trading.

The incumbent management had belief in the business as well as years of investment of time and money and expressed an immediate interest in acquiring it. Given the nature of the business and working capital requirements, we advised that a marketing exercise be undertaken, with the health warning to management that we were likely to receive some real interest in it. We marketed the business and, unsurprisingly, received good initial interest. However, whilst the business itself was good, the inherent liability attached to a very loyal workforce meant that the TUPE obligations caused most to fall away. However, one party stuck it out and we awaited an offer.

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The pound has tumbled. FTSE 100 crashed. Prime Minister resigned. The headlines facing many of us this morning were not necessarily welcome ones. It may come as a surprise, given we are a firm of insolvency practitioners, that most of us here were unpleasantly shocked by this morning’s news!

The setbacks for all sorts of business types in the coming months are obvious, with the financial services and property industries expected to be some of the hardest hit in the first instance. However, I believe it is important not to underestimate the power of the media and the impact of uncertainty on our economy, and there is certainly room for some positivity in the midst of this.

1. Interest rates are unlikely to rise in the foreseeable future.
Whilst low interest rates are not necessarily always a positive, it looks as if they are set to stay where they are for the time being, potentially even taking a further dive as the Bank of England battens down the hatches in order to minimise the economic impact at home of our departure from the EU. A rise in interest rates in a period of economic turmoil such as this could be the catalyst that tips many businesses over the brink of insolvency, resulting in jobs losses and costing both creditors and shareholders. Continued low rates should ease cash flow issues and allow reasonable credit terms to persist, giving many businesses a chance to whether the storm and plan comprehensively for the future. Adaptation to the changes ahead will be the key to survival.

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