Conservatives indicate willingness to tinker with insolvency rules
On The Andrew Marr Show on BBC1 yesterday, Conservative leader David Cameron announced plans to boost small busineses as part of a package of measures to stimulate jobs, wealth and enterprise and to allow the country to "trade its way out of recession." As well as reducing the amount of time it takes to set up a new business and encouraging social landlords to permit tenants to operate a business from their homes, Cameron announced that a Conservative Government would raise the "insolvency threshold" to £2,000 from the current level of £750. He stated that more small businesses had gone "bankrupt" in this recession than previous ones and that "a number have been pushed there by the government itself."
At present, a creditor can petition for an individual's bankruptcy if they are owed more than £750, whilst a company can be wound up following a statutory demand for a debt in excess of £750. But a company can also be wound up by the court if a creditor obtains a judgment for any amount and is then unable to enforce it - for instance, if bailiffs report that there are no valuable assets to remove. So increasing the threshold for companies won't necessarily make it more difficult for a creditor to wind up a struggling company, but it will give some protection for sole traders, who make up the majority of small businesses in the UK.
The threshold of £750 hasn't changed since the Insolvency Act gained Royal Assent in 1986 so it seems reasonable to revisit it. In the 24 years since the legislation was passed, inflation alone would mean that £750 would be more like £1,700 in today's money. I suspect that the threshold hasn't been revisited sooner because the legislation was poorly drafted: the threshold relating to bankruptcy can be changed by statutory instrument but there is no corresponding provision for company winding-up, making it all a bit messy.
But there is another issue: by raising the insolvency threshold, will this lead to more businesses experiencing further problems of non-payment by customers? Would this send out the wrong message to businesses, encouraging them to delay payment? I hope not.
Monday, January 11, 2010
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