Your guide to the Enterprise Act

On 15 September the Department of Trade & Industry's (DTI) Enterprise Act comes into effect and will cause major changes to insolvency legislation.

The new legislation is intended to strike a balance between helping to save businesses that are struggling and ensuring creditors get what they are owed.

Paul Beveridge, a director at finance company Venture Finance, points out the most significant changes to the previous legislation, the Insolvency Act:

  • Abolition of administrative receivership
  • Introduction of new administration procedure whereby an administrator may be appointed both in and out of court
  • Abolition of crown preference (for PAYE, National Insurance and VAT) – to be replaced with a mechanism for a pot of funds from floating charge realisations, which will be distributed to unsecured creditors.

Beveridge believes this should lead to companies approaching their creditors and advisers earlier to discuss underperformance and/or business issues affecting liquidity. He hopes this will reduce the number of companies going under as problems can be addressed much earlier and advice can be sought and creditors appeased before it is too late to ‘rescue’ the struggling company.

Beveridge also predicts that Government agencies, such as the Inland Revenue and Customs & Excise, may react to their loss of preferential status by becoming more aggressive in their debt-collecting activities, which will in turn, make rescues more difficult.

Philip Long, Head of corporate recovery and insolvency at business adviser PKF said, “The Enterprise Act has wide ranging implications for both business and the consumer. It is undoubtedly good news and will help to reduce the stigma of business failure by embracing a new rescue procedure that will encourage enterprise.”

The full text of the Enterprise Act 2002 can be seen by clicking here. In addition, PKF has produced a guidebook to the crucial changes and the effects they will have.

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