Banks still first in creditor queue

BANKS have forced the Government to climb down over plans to curb their right to seize the assets of insolvent companies. Key features of the Enterprise Bill, due to be presented to Parliament this week, are thought to have been watered down after fierce lobbying.

Most importantly, the banks will effectively stay at the head of the queue to claim the assets of insolvent companies owing them money.

The Department of Trade and Industry had wanted banks to lose their privileged position as secured creditors. In return, the Crown, chiefly the Inland Revenue and Customs & Excise, would give up its privileges. The post of receiver, an insolvency practitioner acting mainly for the banks, would have been abolished. Most company failures would be dealt with by court-appointed administrators acting for all creditors.

But these plans have been diluted in the Bill's final draft. While the Crown will become an ordinary creditor, the banks effectively keep their special position. Administrators will still largely replace receivers, but banks will have new powers to put a company into administration without even having to prove it is insolvent.

Trade and Industry Secretary Patricia Hewitt will unveil proposals for up to 10% of insolvency proceeds to be ring-fenced for low-priority unsecured creditors such as suppliers and employees. The Bill also contains controversial proposals to liberalise the law on personal bankruptcy to give those 'who have failed through no fault of their own' a second chance.

Most bankrupts will be discharged after 12 months instead of the present three years, though those who have been 'irresponsible, reckless or culpable' face bankruptcy restrictions lasting up to 15 years.

But R3, the body that represents insolvency professionals, warned: 'These proposals will be a disaster. They fail to recognise that more than half of personal bankruptcies are accounted for by consumer-related debt, up from 39% in 1992. Increasingly, personal bankruptcy has nothing to do with business people who have hit a bad patch and everything to do with people who have spent more than they can afford.'