smallbusiness.co.uk: Helping your business think big

I think the title of the article is a little misleading for SME's. The Insolvency law is there to protect SME's and assist them at difficult times, but with any regime and any insolvency process creditors large and small will lose out. As an Insovlency Practitioner and partner at BCR, I often get approached with regard to assisting a director through a pre-pack, but it is quite rare the prepack ends up being the route chosen, however the outcome is still the same and creditors lose out. Creditors often need to take more responsibility for monitoring and supervising trading terms with customers to avoid exposure to bad debts. Creditors are often turnover hungry with little regard for recoverability until it is too late. I was invovled in conducting some research 3 years ago and the average age of debt in an insolvency was 9 months old, with some as old as 17 months with little or no recovery action taken. Most alarmingly was the significant proportion of creditors who continued to supply beyond agreed credit terms, yet blame for non payment laid firmly at the door of the directors of the failed companies. Is this right? Returning to the issues of prepacks, in SME prepacks it is rare that any option other than a sale back to the existing directors will be the best outcome for a number of reasons. As to whether the pre-pack administration is the right process as opposed to say a liquidation is another matter. Despite this it is rare that prepacks are abused, but public perception is somewhat different. Whatever process is followed there is little that can ever be done to return funds to creditors unless the directors running the business that is in financial difficulty are minded to look at something like a CVA, and unfortunately the majority of directors aren't. When the legislation exists to allow phoenix companies to operate (whether through a pre-pack or straightforward liquidation) with little deterrent, 'phoenixing' will take place. I am a huge advocate of CVA's and have been for many years having put together some wonderfully imaginative and also plenty of simple arrangements, but despite IVA's becoming hugely popular, CVA's still aren't favoured. Changes in the law to prevent prepacks will be against the previous regime's enterprise culture and could be a backward step to what is a reasonably well oiled machine. I would be interested to hear what anyone's alternative solutions are to a prepack in terms of returning more funds to creditors because extracting blood from a stone is impossible whether you use a hammer, a slegehammer or a needle.