In a new paper released today, Defending the rights of those who take risks, George Eustice MP argues small businesses are not adequately protected under current bankruptcy arrangements.
Failure is an important step on the way to success in terms of testing new ideas and business models. The UK has been less progressive than countries like the US when it comes to understanding the role of failure in achieving success. The 2002 Enterprise Act improved the law and made a step towards giving companies and partnerships similar protections to those in the US, by establishing a legal process which prioritises the sale of a company as a going concern. However, some aspects of bankruptcy law in the UK are out-dated and continue to give an unfair advantage to banks, particularly when it comes to procedures for smaller businesses. Unlike in the US, small businesses do not have access to the new administration procedure when faced with financial distress. Instead, the normal approach for a small business is the appointment of a receiver under the 1925 Law of Property Act (LPA). These LPA receivers behave in a similar way to the old style administrative receivers. The banks have also extended their rights and powers through their standard terms and conditions to the detriment of enterprise. It is time to rebalance the law and limit the powers of LPA receivers.
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