The insolvency trade body R3 has secured plenty of column inches in the past week following the announcement of its 2015 manifesto. The body has made a pre-emptive public appeal to the winning party in the 2015 general election to tighten up insolvency laws and deliver a better deal for taxpayers, small businesses and indebted individuals.
R3’s diverse list of reforms includes:
- Legal funding in insolvency cases to help creditors claw back money from rogue directors
- More money returned to small businesses following football club insolvencies
- Greater engagement from government creditors in insolvency cases
- A comprehensive update to the personal insolvency regime
Plenty of room for improvement
Graham Rumney, chief executive of R3, said: “The UK’s insolvency regime is already the world’s 7th best, according to the World Bank, but there is still plenty of room for improvement. The challenges that face business and personal finances are constantly changing and it is important the insolvency regime is regularly reviewed and updated to keep pace with those changes.
“The 2010 general election saw a turning point in the insolvency landscape as insolvencies hit a post-financial crisis peak. 2015 could be another turning point.
“The conditions that have helped put downward pressure on corporate insolvencies are changing; personal insolvencies are already on the rise, even before an interest rate hike.”
Policies to be implemented
R3 is urging the UK’s main political parties to commit to implementing a number of policies in the run-up to the 2015 general election. These include:
The permanent exemption of insolvency litigation from the 2012 Legal Aid, Sentencing and Punishment of Offenders Act (LASPO)
Funding from the LASPO Act has made it possible for creditors to pursue legal action against directors of insolvent companies who wrongly, fraudulently or negligently take creditors’ money.
Every year, an average of £160million is returned to small businesses and HMRC from rogue directors. However, this is only possible thanks to an insolvency litigation exemption in the LASPO Act, which allows creditors to claim legal aid. This exemption expires in 2015 and more money will stay in the hands of dishonest directors if it is not made permanent.
More money returned to small businesses following football club insolvencies
In the fallout of insolvencies at football clubs, the current ‘Football Creditors Rule’ means that non-football related unsecured creditors tend to lose out. R3 believes a minimum of 35p in the pound over the course of three years should be repaid to unsecured creditors who fall outside of the Football Creditors Rule.
Greater engagement from government creditors in insolvency cases
Greater engagement from government creditors often results in higher returns for all creditors involved in insolvencies. Despite regularly being the creditors left most out of pocket by insolvencies, government departments such as HMRC rarely engage in the insolvency process, reducing the money small creditors, and ultimately the taxpayer reclaims. R3 would like to see government departments become far more willing and active participants.
A comprehensive update to the personal insolvency regime
A comprehensive review of the personal insolvency regime is long overdue. It has not been updated since 1986, and R3 believes simple steps like updating the entry requirements of bankruptcy and debt relief orders should be taken.
In summary, Mr Rumney of the insolvency trade body, said: “Insolvency is about striking the right balance between creditors’ and debtors’ needs. Sometimes, existing legislation and regulation can make this balance difficult to achieve”.
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