See Linkedin for a debate on Scottish Corporate Insolvency and calls for Harmony with England

29 June 2009

An interesting debate!

R3 calls for change

R3, the insolvency trade body, has welcomed the Calman Commission’s call to clean-up company insolvency law in Scotland by re-reserving all power on the issue to Westminster. And it strongly backed the Calman conclusions that changes should be made ‘with a minimum of delay.’

My reply to this debate can be found below. No guesses which way we would vote if allowed to.

KSA has an office 3 miles from Scotland and has been instrumental in driving the use of CVAs in Scotland despite enormous opposition from the incumbent large firms.

We have been involved in more than a dozen north of the border in recent years and all bar 2 CVA's are still trading. Indeed we have some very outspoken clients who were advised to dump their company and start again by Scottish insolvency practitioners. Thankfully they found us on www.companyrescue.co.uk ! They will happily give testimonials for KSA and the CVA tool.

We have had to resort to case law and English practice to get some of our clients extricated from the "wind it up, as all directors of insolvent companies are thieving from the creditors" approach. This crass view that all distressed directors are dissipating assets is behind what a Sheriff in the Court of Session told me personally, was "macho debt collection and posturing by the big firms to control the market".

When a company starts down the Company Rescue path we always advise them (as we did today actually on a new Edinburgh CVA client) to register a Caveat in the Court. A creditor may unilaterally issue a petition to wind the company up AND appoint a provisional liquidator to the company on the basis that he or she thinks the company is insolvent! This is madness.

Within 24 hours a liquidator can arrive out of the blue appointed by the Court on the unilateral whim of an aggrieved creditor, (s135 Insolvency Act 1986) This is why I say it is madness.

Don't believe me? Here is a true story. We were restructuring a Scottish electrical contractor. A CVA was being put together and KSA had written to all creditors asking for a period of time to put the CVA together. A winding up petition was served within 3 days and an application for a provisional liquidator accompanied it. We went straight to Court through a very good small law firm and Junior Counsel.

The plaintiff stated that they had sent an observer (I actually saw him when visiting my client) to observe the company's premises. The counsel for the creditor said, "we observed the directors removing the company's and therefore creditors' assets into vans outside the premises on the morning of ***" , he even kindly gave the Sheriff the registration numbers of the vehicles.

This "observation" was the electrician’s staff loading their vans before going out to their sites to work!

Needless to say the Court agreed with us and the petition/liquidator was blocked allowing time for the CVA to be put in front of ALL creditors.

Interesting to note that some of the English cousins of the perpetrators of such nonsense are very keen on CVAs, administration and company rescue. Yet the Scottish Brethren prefer to bury it, even if they don't know anything about it. Perhaps they need a partners meeting to discuss a more coherent British strategy!

There are two good things about corporate insolvency north of the border. One is the supportive and constructive approach of the HMRC departments. We find that by keeping them informed of the proposed solutions, the restructure work and finally the CVA proposal (for example) they are happy to get involved and are broadly very supportive.

The other? Caveat! It should not be necessary but it is and at least gives the client 24 hours warning of impending winding up action and appointment of provisional liquidators.

As turnaround and insolvency practitioners in England and Scotland we support the harmonisation proposals to bring Scotland into line with England and adoption of a company rescue policy in Scotland as soon as possible.

This could be a very interesting debate in the next few weeks.