A long time ago, after much flurry and excitement I remember first reading the Harmer Report and its recommendations into changes to the insolvency laws. It was even more exciting to watch as the new legislation came into being in 1993. The new world order had arrived!In fact at the time our Firm was considered one of the prominent trainers to industry on how the new system would work and the wide variety of options that it allowed for in the construct of solutions to revive ailing companies and save businesses and most importantly jobs, and did pay more to creditors.
Off into the new world we went. First to be upset by the new world order were the ‘Creditor’ firms, as they were described at the time, because the new appointments began to lead to a reduction in receivership appointments that was their main staple of work. This then lead to short lived industry guidance that the ‘dollars’ vote was king; it had been presumed that the banker would be the largest single creditor, and thus the banks would retain control, but the new world order continued to gradually evolve.
The other thing to understand is that at that time any form of government assistance for unpaid wages was not even a dream in any one’s mind, other than possibly some employee groups. That programme would come later in answer to Prime Minister’s solution to a family insolvency.
The new world order did bring in some change and certainly brought about some significant gains and solutions. Alas though it also brought in a group that gradually worked out that, like all laws, the system was capable of manipulation. These early attempts went unnoticed and no proactive action was taken by almost anyone except those that would not play dirty. I remember one where the proponents wanted a 10 percent distribution done, and because they controlled 90 percent of the debts, there was no need for any proper investigation, but merely the legal work necessary to propound the required deed. I respectfully declined on the basis that if I was not to be permitted to do my job properly then I would not do it at all. Someone though did do it.
With the subsequent decision that any form of government funding of unpaid wages would only be granted to liquidated companies, then the next knife was thrust into the administration process. The system manipulators buried the companies and the employee debts and left the government with an ever increasing problem. One that has been well documented and legally fought elsewhere.
The whole basis of the Harmer legislative changes was to enable businesses to rebuild and grow; they could go through a process of legal and positive ‘phoenixing’ that preserved value for credible reasons and the right people. Alas, we now see that this is almost despised by a wider audience. So what of the future? Is turnaround at the point of insolvency dead? Have all of the options been taken away?
The RCR Tomlinson case appears to say yes because an army of advisers, potentially focused more on fees than solutions, appears to have narrowed the options significantly. One must wonder whether a thorough and proper analysis, coupled to an appointment and a Deed, with the fund raising being done as part of the Deed rather than before a recommendation to appoint was made may just possibly have saved the day; and a lot of creditors money.
For this matter it appears it may potentially be too late, but the lengthy investigation that will ensue is unlikely to consider what better courses of action were available, and should have been taken. We appear to be trapped in a legal process not a solutions process, and in the long term it will remain creditors that will pay the ultimate price.
The legislators are unlikely to search this out as many come from the same advisers that are involved in these large matters, but I’m confident that when the time comes and the number of insolvencies increase the attention will once again return to seeking out solutions that preserve value, not merely follow a process.