Insolvency practitioners are calling on the Government to introduce a moratorium on unsecured creditor action against insolvent companies, following a survey which showed that voluntary arrangements were more successful than ever last year at rescuing businesses.
Allen & Overy partner Gordon Stewart is chair of the Society of Practitioners of Insolvency, which conducted the survey. He said that the Company Voluntary Arrangement (CVA), introduced in 1986 to help businesses restructure to avoid insolvency, was now used 11 times more than it was three years ago and was “beginning to fulfil its original promise as a rescue tool”.
With a moratorium in place, he said, CVAs would be even more successful. “The Government has been considering the introduction of a moratorium for some time. We were disappointed that the Queen's Speech made no mention of it.
“A moratorium would protect the debtor from hostile unsecured creditor action while the company formulates proposals to put to all creditors.”
His survey showed that CVAs had achieved a business preservation rate of 75 per cent and a job preservation rate of 59 per cent last year.
The introduction of CVAs has meant more work for accountants. Insolvency was an area identified this month by an Institute of Chartered Accountants working party as an area where accountants were protected from encroachment by competitors such as lawyers and could remain dominant in the future.
“Accountants enjoy a dominant position in this field and unlike many other areas the position of lawyers is weak and will only strengthen slowly,” said the working party's report.
Under a CVA a company must appoint a licensed insolvency practitioner, nearly always an accountant, to supervise the arrangement.
Stephen Gale, insolvency partner at Hammond Suddards and a licensed insolvency practitioner, said: “There are lawyers like me who are licensed but we don't tend to take appointments. It's nearly always the accountants. We are often called in to advise on voluntary arrangements drawn up by accountants. If we did the work we would be biting the hand that feeds us.”
He said in the early years of CVAs most of the drafting was done by lawyers. “Now the accountants have taken the precedents developed by lawyers. The documentation for voluntary arrangements are now nearly always done by accountants in-house.”