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McCombie and Co. are pleased to announce that Qasim Nawaz has recently qualified as a CEDR accredited mediator, which will greatly assist in the growth of the firm. McCombie and Co are also very pleased to announce that they have been reaccredited until 2009 as an Investor in People. This will mean nine years as an I.I.P. member.

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Introduction to Insolvency Newsletter

Rescue+Recovery=Result

Successive modern governments have worked hard to promote their images as being one of economic generators and re-generators. We can go as far back as the 1960's to see how and why governments have taken this approach. If we were to believe all the spin then governments would be happy to allow the laissez-faire type of growth that Britain enjoyed during periods the industrial revolution to take place. Unfortunately the problem for governments (as we well know) is that talk is cheap. No government can afford to allow unhindered economic generation and expansion. Governments now realise that for a multitude of reasons the law must intervene in the economy to introduce checks and balances to control economic conditions, growth and interaction otherwise the economy would sooner or later collapse.

The first tranche of such legislation occurred at the end of the 19th Century with the introduction of the legislation designed to control the growth and spread of partnerships and limited companies. This was soon followed (some would sceptically say inevitably) by the introduction of insolvency legislation in 1914. Subsequent efforts to update and change these laws have then been made by successive governments throughout the 20th Century in order to promote growth and expansion with the present government being no different.

New Labour has been at pains to promote an image of being business friendly and economically prudent. As part of it's reform packages the government has introduced a wide range of legislation permitting the incorporation of limited liability partnerships, relaxing rules relating to bankrupts and bankruptcy and reformed the rules governing insolvent companies. The rationale behind these reforms is the concept of the "Enterprise Culture".

This latest McCombie & Co. newsletter discussed some of the important new changes relating to both personal and corporate insolvency and highlights some of the pitfalls to be avoided. The Newsletter also provides details of the latest DTI insolvency figures, which show the rate of insolvencies on the rise. Finally, we provide a quick guide to the thorny issue of Director's Disqualification. Which has been on the increase in 2005 and which we consider may be of assistance to many of our corporate clients.

If any of our readers wish to discuss the issues raised in this Newsletter then please do not hesitate to contact Azher Quyoom or Ian McCombie, both of whom will be pleased to speak to you.

ADMINISTRATION ORDERS AND WINDING UP PETITION

It is generally the case that a business which is in difficulty will attempt to pay the creditors applying the most pressure first. If you are a secured trade creditor now would be the time to enforce your security. If you are an unsecured trade creditor then the best tactic would be to attempt to exert enough pressure on the company in order to elicit payment of your debt before any other creditor either petitions for the company's winding up or applies for an administration order.

Following implementation of the Enterprise Act 2002 administration orders are becoming increasingly used by unsecured trade creditors as a means of taking more control of a debtor company after it becomes apparent that the company is insolvent. Previously this route was comparatively little used as it could be subverted by secured creditors who had the statutory right to appoint an Administrative Receiver to the company or apply for a winding up order. Winding up orders themselves were quicker and simpler to seek whilst the Administrative Receivers appointed by secured creditor often limited their duties to the person appointing them rather than to all creditors generally. Unsecured trade creditors therefore rarely got the chance to apply for Administration Orders which in turn afforded the debtor company valuable breathing space to attempt to salvage their position and continue trading.

An application for an Administration Order is now much easier to make and is becoming a popular method for the enforcement of a floating charge as well as for the attempt to rescue the business. Secured creditors now have limited rights to appoint an Administrative Receiver to a failing company and although they retain certain rights as a consequence of their preferred status the primary aim of Administration is the rescue of the company as going concern or a better realisation of the company's assets in the Administration than would be achieved by going straight to liquidation.

Unsecured creditors can use the procedure to enable them to appoint their own administrator to a debtor company so that they have a real say in the future of the business even after administration. Previously unsecured creditors have had little say in the affairs of a company in administration no matter how much they are owed. The new regime allows them to approach an insolvency practitioner on their own terms, agree issues such as costs at the outset and then to put forward that person's nomination as the proposed administrator. There is no reason why in the right circumstances an unsecured trade creditor should not consider the above approach rather than sit on the sidelines waiting for others to decide on the future of a debtor company.

The Government has introduced the Enterprise Act 2002 as a key piece of legislation in an attempt at fostering an enterprise and rescue culture. A disgruntled creditor can now look to the Administration procedure as a viable and cost-effective method of appointing an Administrator to look after the interests of himself and the other creditors in an effort to ensure the best possible return is achieved for all creditors.

McCombie & Co have extensive experience of dealing with Administrations for insolvency practitioners, creditors and companies and would be pleased to speak to any one considering such a procedure.

BANKRUPTCY PETITIONS

Recent reforms to bankruptcy law took effect from April 2004 including:-

· Automatic discharge for bankrupts, (first bankruptcy only) available after a maximum of one year (reduced from the previous level of three years);
· Certain bankruptcy offences decriminalised;
· The rights of bankrupts and their families in respect of the family home are strengthened.

The thinking behind the recent reforms is to make the whole bankruptcy procedure less unpleasant and to reduce the stigma attached to bankruptcy so as to encourage entrepreneurial risk taking. This follows on from the old wives tale from the US that says that every successful businessman in the US has at least one bankruptcy behind him.

The problem with this logic lies in the fact that by far the greatest number of bankrupts are ordinary consumer debtors, not the business risk-takers the government is attempting to encourage. As the UK consumer continues his love affair with the credit card many more individuals are exposing themselves to the risk of bankruptcy as a result of obtaining cheap and easy credit from a plethora of lenders, who are all too eager to extend credit to anyone who has a good enough credit history. Even then, there are many new lenders who have specifically set themselves up to service the market of "credit-troubled" individuals who find it hard to find credit from the usual lenders. Presumably, these are the individuals who have found themselves unable to pay their existing credit card debts leaving them with a poor credit history, who are then forced to look for even more credit to pay off their existing debts.

Recent insolvency figures reveal that the number of individual bankruptcies has increased over the past few years and it is suggested that this is in part due to the recent reforms as set out above. Debtors should not be fooled into believing that they can walk away from their bankruptcy after one year without any consequences upon their personal circumstances. Simply because the term of the bankruptcy for a first time bankrupt is no more than one year this does in no way limit the Trustee in Bankruptcy's powers in respect of realising the Bankrupt's assets for the creditors. The Trustee in Bankruptcy can continue to attempt to realise all assets within the Estate in Bankruptcy in the same way as before the changes came into effect and for almost all of the same period.

Even though many changes have been made to bankruptcy law, procedurally, bankruptcy remains largely of the same as before. If you are declared bankrupt by the Court or if you petition for your own bankruptcy and an Order is made against you then you are still required to attend the Official Receiver's office for interview. The Official Receiver will decide on the information provided to him by the Court and by you whether there are any assets within your Estate in Bankruptcy that can be realised for the benefit of your creditors. If there are assets available then more than likely a Trustee in Bankruptcy will still be appointed to realise those assets and you will be required to co-operate with the Trustee insofar as possible. If there are no assets available within the Estate in Bankruptcy then the new legislation permits the Official Receiver to provide for an early discharge from Bankruptcy even if this means within weeks of the date of the bankruptcy order.

McCombie & Co can assist both creditors and debtors with all matters concerning corporate and personal insolvency and further information and assistance may be obtained from Azher Quyoom in our Insolvency Department.

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Newsletter Part 2

Newsletter Part 3