Insolvency Reform plans dropped

A huge re-vamp of Insolvency Legislation came into effect on 6 April 2010 (the last major re-vamp was in 2003). Whilst it didn't change the underlying structure and principles of the Insolvency Act 1986 in dealing with personal and corporate insolvency, it did modernise the legislation to take account of such things as electronic submission of forms, documents etc, use of email and particularly allowing remote meetings of creditors where appropriate. It also simplified the procedures by harmonising these across both the personal and corporate processes.

This was intended to be the first of a major series of reforms aimed at bringing the insolvency legislation into the 21st Century and simplifying it as much as possible. For those of you who are interested, this area of legislation has grown to almost unwieldy proportions since the abolition of debtors' prisons (a mistake some may say...!) in the late 1800's.

It was further proposed that more reform was needed, specifically by introducing a Chapter 11-style process as operated in the USA. This is where a CVA style process is entered into (even for companies that are hopelessly insolvent and should be closed) by the directors of a company in order that they can carry on trading and an orderly winding-up of the company is conducted under a process where the Court (rather than an Insolvency Practitioner as is the case currently in the UK) presides. However, an article in Insolvency News (here) confirms that further reform is unlikely in the short to medium term future.

THIS IS NOT A BAD THING!! In my opinion anyway! I'm slightly nervous of Chapter 11 (or similar) becoming the norm in the UK, as we already have an analogous process called "Administration" that as far as I am concerned works particularly well. This has been around since 1986 and has been tweaked several times since, particularly from April 2010 to provide a much higher level of transparency to the process.

Any major reform needs a lot of back office support to make sure it works in practice as well as theory and that support is generally provided by the Government's Insolvency Service in its monitoring capacity. Given the upcoming Government spending review in October 2010 and the already known requirement to reduce the Insolvency Service's costs by over 10%, such support would not be available to ensure the reforms worked properly.

All legislation is imperfect - you can't have a "one size fits all" statute. What we have got to date is a set of reasonably workable statutes and further tinkering with some areas and not others (i.e. a piecemeal approach rather than an overall one) simply makes it more confusing for everyone (even the IP's occasionally!)