Warning on insolvency moves

City lawyers this week warned that Department of Trade and Industry proposals for the reform of corporate insolvency laws - published in a white paper earlier this year - risk leading to a four-fold increase in court administrations.The warning came in a response to the white paper submitted by the City of London Law Society.The white paper's proposals would mean that companies which under current law would be placed into administrative receivership, would instead be placed into a slightly adapted court-based administration process.This would be flawed and have a costs structure which makes it unsuitable for small- to medium-sized companies, the society says.The society's response welcomed the aims of the proposals - to ensure that all creditors are treated fairly in circumstances where a company which has granted a floating charge over all its assets is unable to meet its financial obligations.But the report adds that the means proposed by the white paper - effectively abolishing administrative receiverships except in limited circumstances - represents the wrong approach.Instead the society suggests that administrative receivership - with enhanced duties on receivers for the benefit of unsecured creditors - should remain in existence with a system of voluntary administration.

This is modelled on the Australian system, and the report says this approach has worked to make voluntary administration the system of choice in that country.The society is also urging that if the white paper proposals proceed, the government should clarify as quickly as possible the transitional arrangements 'so as to minimise uncertainty for the market'.

Jeremy Fleming