The Live Wire



Press Release

R3: change insolvency law to reduce pre-packs

21 March 2011

The insolvency trade body R3 is calling for a change in legislation which insolvency practitioners estimate will reduce the number of pre-packs by more than a fifth. R3 want the law to prevent suppliers demanding extortionate ransom payments, increasing their prices or ceasing to supply as a company goes into formal insolvency.

The findings of an R3 survey show that more than 22% percent of administrations are pre-packed because insolvency practitioners fear that suppliers will take unreasonable actions during insolvency, making it impossible to trade the business.

R3 President Steven Law commented:

"When a supplier demands a ransom payment it puts a further strain on a business' already stretched resources. This prevents an insolvency practitioner from trading a business out of insolvency and reduces the amount that can be returned to the body of creditors as a whole. In these cases a supplier is not recouping money lost; the supplier is ‘taking advantage' to the detriment of other creditors. It is unnecessary for suppliers to take this action as those who continue to supply during insolvency have the security of being paid as an administration expense – ahead of all other payments.

"Traditionally a practitioner would be able to rescue the business following a period of successful trading. Unfortunately our members are now handling cases where utility companies and other suppliers have more than doubled their tariffs when the business was trying to trade through an administration. Insolvency need not be the death knell for a business, but often a supplier's actions reduce the options available to an insolvency practitioner. In many cases the only options left are to sell the business as quickly as possible or simply shut it down."

The survey of insolvency practitioners also reveals that 14% of liquidations – which equates to more than 2,000 businesses a year - could be avoided if suppliers continued to supply at the pre-insolvency contract price.

Law continued:

"We are not asking for special treatment for companies in a formal insolvency. We just want suppliers to give business rescue a fighting chance. Provided that bills are paid on time and in full, suppliers should continue to supply on the same terms as before the formal insolvency. This amendment would lead to an improved rescue culture which would benefit the business community and the wider economy."



Press releases, papers and documents published on this page are the intellectual property of an organisation unrelated to Central Lobby. We promote their parliamentary and political campaigning activities as they are subscribers to the Central Lobby service.

As such, Central Lobby does not edit, endorse, or attempt to balance the opinions expressed on this page. The content of press releases and other such types of content are the responsibility of the originating organisation.

R3 The Insolvency Trade Body

R3 The Insolvency Trade Body

More from Dods

© Dods Parliamentary Communications Ltd