It was good to see Cllr John Clancy raising an allied subject in the Birmingham Post. As he points out: “If you are a small business, especially if you’re a sole trader or small partnership, a delay in the basic payments you are owed can be commercially fatal.”

Nick Starling, Director of General Insurance, also wrote last year deploring the injustice of our insolvency system where, “overnight, small businesses that have been trading in good faith find it an uphill struggle to get bills paid or to retain title to goods they have supplied.”

Cllr Clancy reminds us that when LDV went into administration the workers had to wait for two years before  getting paid: “Others who, to be frank, could better absorb losses found themselves paid out first.”

The first claims to be satisfied are those of ‘secured creditors’ the banks and the administrators; the people who have actually done the work and supplied the goods often get little or no payment.

Ensure that business insolvency does not radiate catastrophically outwards into the commercial and social community

Clancy’s suggestion; “Well, let’s now build an insolvency legal framework which redresses the balance and provides that just being a secured bank creditor, especially a bailed-out one, does not give you first bite of the cherry . . . and ensure that business insolvency does not radiate catastrophically outwards into that business’s commercial and social community.

Sauce for the banking goose is sauce for the SME business sector

He proposes that “Just as we saved the banking system in its entirety, so should we adapt insolvency laws to ensure that wider commercial and social communities are saved in the event one business’s failure. What’s sauce for the goose…..?”

As taxpayers’ intervened in the banking markets to protect the entire system by a whole range of measures at the time of the crisis and since, Clancy suggests that “until taxpayer support is withdrawn from the system in its entirety . . . the ranking of the banks in the pecking order on insolvencies should be downgraded a few notches.

Banks are ‘veritable commercial basket cases’ with ‘turbo-charged rights’ when it comes to insolvency

Pre-empting critics who will say that we should let the free market decide and those unable to cope with the normal exigencies of business should be best left to go to the wall, he points out that it’s not survival of the fittest when it comes to bailed out banks: they are veritable commercial basket cases, but they get turbo-charged rights when it comes to insolvency.

Cllr Clancy’s recommendation: “ I would suggest that paying out swiftly and without question to ordinary employees what they are owed should be the permanent priority in insolvency in any event. The LDV workers should have had their money years ago.”

 

Cllr. Clancy’s Post article is now online.

 

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