Member Article

Rural North East SMEs facing exclusion from business insolvency process

Creditors of insolvent companies who are based in rural and remote parts of the North East could be locked out of the business insolvency process after the Government pushed through a clause in the new Small Business, Enterprise and Employment Bill which imposes restrictions on physical creditor meetings.

The Bill proposes that physical creditor meetings can only be held if requested by 10% of creditors in an insolvency, which in some cases would represent hundreds of different businesses or individuals.

A Labour amendment during the Bill’s committee stage which proposed that a physical meeting could be held if just one creditor requested a meeting was passed earlier this month after Government MPs missed the vote, but has now been reversed.

The new measures are designed to encourage more ‘virtual’ creditor meeting to take place over the Internet, but Allan Kelly, chair of insolvency trade body R3 in the North East and a restructuring partner with Baker Tilly North East, believes that the poor broadband access and connectivity that continue to affect many rural and remote parts of the North East could make this an impractical or even impossible option for creditors based in these areas.

Recent research by the Federation of Small Businesses (FSB) found that 45,000 small businesses across the UK had no broadband access, with connections unreliable for thousands more, while according to a government-backed report by Professor Elaine Kempson last year, 86% of unsecured creditors (excluding HMRC) ‘sometimes’ or ‘very/quite often’ attend or use a proxy vote at a creditor meeting.

Allan Kelly is now calling on the Government to reconsider its proposals and think about what measures are really in creditors’ best interests.

Allan said: “While the overall aim of the Bill is laudable, in reality some of its measures will negatively impact on insolvency procedures, and the move away from physical creditor meetings is a real concern for people and businesses in many parts of the North East.

“The infrastructure simply isn’t there across many parts of Northumberland and County Durham in particular for an immediate jump from physical meetings to virtual meetings to be manageable, and while the Government is supposed to be boosting creditor engagement in insolvencies, these measures will have the opposite effect.

“Physical creditor meetings are a key way of engaging creditors in insolvencies, and there is very little justification for removing an insolvency practitioner’s power to call a physical meeting.

“Creditor engagement helps keep insolvency costs down, increases returns to creditors, and helps make sure misbehaviour by failed companies’ directors is brought to light - alternatives, like online meetings, are simply not as effective.

“Even though this amendment has now been overturned, it’s not too late for the Government to reconsider its proposals. They need to listen to those with first-hand experience of insolvency, and think about what measures are really in creditors’ best interests.”