Enterprise Act 2002 Part I: Reforms to Corporate Insolvency
The Enterprise Act 2002 received Royal Assent last November. It consists of 281 Sections and 26 Schedules dealing with diverse issues from Competition to Consumer affairs. It also brings in changes to Insolvency legislation. The Corporate Insolvency legislation reforms are likely to be introduced after April 2003. To summarise these include:
Abolition of Crown preference:The preferential status of debts owed to Inland Revenue and Customs & Excise are removed. However, certain categories of Preferential Creditors such as employee claims and the Crown's subrogated rights in respect of salary and wages remain.
Unsecured Creditors receive a share of assets:
The abolition of Crown preference will not provide a complete windfall for floating charge holders. They will have to make available a prescribed amount (yet to be determined) for Unsecured Creditors.
Appointment of Administrators:
Revised administration procedures are introduced whereby an administrator may be appointed by court order or out of court by a floating charge holder or the company and/or its directors. The Act intends a single purpose for administration - a greater emphasis on company rescue. So, an administrator must perform its duties with the objective of rescuing the company as a going concern. If this is not reasonably practicable or in the interest of creditors as a whole then the administrator should achieve a better result for creditors as a whole than if the company were wound up. In the event the administrator considers neither of the above are reasonably practicable then he must perform his duties realising property to make a distribution to one or more secured or preferential creditors without unnecessarily harming the interest of unsecured creditors.
The Act places a statutory duty on an administrator to perform his functions as quickly and efficiently as reasonably practicable. There are time limits however the Act enables these to be extended by creditor consent for certain limited periods or by court order
Restriction on appointment of Administrative Receiver:
After the commencement of the Act a floating charge holder will only be able to appoint in certain prescribed areas or pursuant to a loan contract and floating charge created before the start of Section 250 of the Act.
NITA KING
HEAD OF LITIGATION
LEMON & CO
This article gives a general overview only and cannot be relied upon in any particular case. The need for specific legal advice must always be considered.
For further information, please do contact Nita King on 01793 527141 alternatively by email on nita.king@lemon-co.co.uk. Please visit our website on www.lemon-co.co.uk for other articles
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<p><strong><a href="http://www.lemon-co.co.uk/article_enterprise-acta.php">Enterprise Act 2002 Part I: Reforms to Corporate Insolvency </a></strong><br />
The Enterprise Act 2002 received Royal Assent last November. It consists of 281 Sections and 26 Schedules dealing with diverse issues from Competition to Consumer affairs. It also brings in changes to Insolvency legislation. The Corporate Insolvency legislation reforms are likely to be introduced after April 2003...</p>