P LETTER OF THE WEEK
Page 20
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Phoenix operations are a necessary tool
DURING THIS recession all manner of trade associations have given their opinion on phoenix operations and pre-packaged sales by insolvency practitioners, mostly concluding that they should be banned (CM 2 September). Yet closed businesses rarely re-open and the jobs and wealth they created are lost forever.
In broad terms, the Department for Business, Innovation and Skills does not share trade associations' views; it wants to encourage responsible entrepreneurial activity so the country as a whole will prosper. Yet there are faults in the system as evidenced by a lack of confidence in the ways things are. Trade creditors lay the blame at the hands of "unscrupulous insolvency practitioners, who make money out of encouraging directors to walk away from their debt and start again".
Insolvency practitioners argue that they are only dealing with the reality of the situation — that companies that approach them are often too far gone to be saved, that there is no money to fund trading on in insolvency in the hope of somehow finding an independent buyer of someone else's basket case.
The Insolvency Service has the tools to prevent repeated phoenix operations but lacks the resources and political will to do so to the extent that trade creditors would like to see. The problem lies in the crisis of confidence of trade suppliers in the integrity of insolvency practitioners and the effectiveness of the system to weed out the rogues from the unfortunate or those whose skill set is incomplete.
At a time when the government's policy is to reduce bureaucracy — and it has to encourage more would-be entrepreneurs to give it a go without spending any cash — the answer must come from elsewhere.
Phoenix operations and pre-packs are a necessary tool for preventing wealth leaking from the country. I do not believe the incumbent insolvency practitioner on a case should act as judge and jury of directors looking to try again. No one forces trade suppliers to extend credit to phoenix operations, but they do lack meaningful and timely information to decide whether the phoenix is a good credit risk.
Paul Brindley
Insolvency practitioner Midlands Business Recovery