Despite the economy officially being out of recession for some time, the early recovery is sluggish and confidence has not returned to UK plc, says R3 president, Frances Coulson.
Marginal growth of just 0.2 per cent last quarter combined with a rise in corporate insolvency, as the latest insolvency figures show, reveals UK businesses are not out of the woods yet. Despite the economy officially being out of recession for some time, the early recovery is sluggish and confidence has not returned to UK plc. To ensure the economy returns to full fitness, with growth figures rising, R3 believes the government needs to improve and protect the UK's business rescue culture.
R3 has launched a campaign, 'Holding Rescue to Ransom', which aims to improve the business rescue culture. The ability of the insolvency profession to secure business rescue (and subsequently save jobs) depends on various factors – one being suppliers' willingness to continue to supply their services during formal insolvency. At present there is nothing to stop suppliers undertaking a series of unreasonable actions when a company enters insolvency – demanding ransom payments, varying terms or withdrawing supply completely. This limits the business's chances of rescue, as continuation of supply is critical to the everyday functioning of the business.
R3 is calling the government to modernise section 233 of the Insolvency Act 1986 which currently only states utility suppliers must continue supply, as they are deemed 'essential' suppliers. Twenty-five years on from when the act was first introduced, the business landscape is very different: IT suppliers and accounting software are critical to the everyday functioning of a modern business, and should be included in the legislation.
The business community also needs protection from delinquent directors. When the director of a company acts improperly, stripping value out of a company prior to insolvency, creditors are often left with nothing. In these circumstances it is important that creditors should be allowed to recover both their losses and the cost of recovering those losses from the director.
The government's planned changes to civil litigation costs and funding will severely restrict creditors' ability to recover this money. Creditors owed money are often otherwise well-run businesses that may be put under severe cashflow pressure as a result of delinquent behaviour.
Allowing 'dodgy' directors to prey on other viable businesses, without being pursued by insolvency litigators, is costly to the economy. It's important businesses are given a fighting chance to survive by eliminating the unreasonable action of suppliers and preventing 'dodgy' directors being able to pursue their next victim!
Throughout recess, ePolitix.com will be focusing on a different policy theme each week. This week we are featuring articles with a focus on business and the economy.