The Enterprise Act received Royal Assent on 7 November 2002. At that time the Secretary of State for Trade and Industry, Patricia Hewitt said:

"The Enterprise Act is good news for business, consumers and the economy. It will give those entrepreneurs who have failed honestly a second chance and help ensure that companies in difficulty do not go under unnecessarily. These measures will help promote an enterprise culture and drive up productivity. We will continue to work closely with stakeholders to ensure that the measures are implemented as effectively as possible."

The corporate insolvency provisions contained in the Act will change insolvency law by providing for a new regime for company administration and restricting the future use of administrative receivership and abolishing the Crown’s preferential creditor status. These measures are expected to come into effect in the early part of the 2003/04 financial year.

The streamlining of the administration procedure will be effected with the replacement of Part II of the Insolvency Act 1986 with a new Schedule B1 - as set out in Schedule 16 of the Enterprise Act. This will be inserted after Schedule A1 to the Insolvency Act 1986 and will apply to companies entering administration. However, in order to ensure that the implementation of the streamlined administration covers as many types of businesses as possible, the Insolvency Service is now seeking the views of all the relevant interested parties as to whether this procedure should be extended to partnership businesses, through the amendment of the relevant legislation.

We hope that those with an interest will let the review team have their views so that they can fully consider these points in reaching conclusions and framing recommendations.

1.1 The purpose of the consultation is to seek views on the proposal to extend the forthcoming amendments to Part II of the Insolvency Act 1986, concerning the streamlined administration procedure, to insolvent partnerships.

1.2 How to respond to this consultation:

by e-mail: Julie.James@insolvency.gsi.gov.uk

by post: Miss J James
Policy Unit
The Insolvency Service
Area 5.7
21 Bloomsbury Street
London, WC1B 3QW

1.3 Responses must be received by 31 March 2003.

1.4 Your response to this consultation document may be made publicly available in whole or in part at the Insolvency Service and/or Department of Trade and Industry's discretion. If you do not wish all or part of your response (including your identity) to be made public, you must state in the response which parts you wish us to keep confidential. Where confidentiality is not requested, responses may be made available to any enquirer, including enquirers outside the UK, or published by any means, including on the Internet.

1.6 If you would like help with queries or further information about this consultation please contact the official named above.

2.1 This consultation document sets out the Government’s proposal to extend the new streamlined administration process to insolvent partnerships. Partnerships currently have access to administration procedures which mirror Part II of the Insolvency Act 1986. However, the relevant provisions of the Enterprise Act 2002 will streamline and refine the process of administration when they are implemented early in the 2003/04 financial year.

2.2 The Enterprise Act includes a package of reforms to corporate insolvency proceedings that are designed to promote rescues and to create a fairer system in which the administrator must act in the interests of all creditors and in which all creditors are able to participate. The purpose of administration will be simplified to emphasise rescue, or where that is not reasonably practicable, better returns for creditors.

2.3 We are seeking views on the proposal to extend the relevant administration provisions of the Enterprise Act to insolvent partnerships. This would have the advantage of allowing partnerships to utilise the new out-of-court appointments procedure, more certain time-scales and the simplified process of administration. We do not propose that the procedures for the appointment of an administrator by the holder of a qualifying floating charge will apply to partnerships.

2.4 The proposals, if accepted, would come into force three months after the amendment to the Insolvent Partnerships Order 1994 is made.

3.1. The Insolvency Act 1986 do not automatically apply to partnerships but are extended to insolvent partnerships by virtue of Section 420 of that Act, which states that the Lord Chancellor may provide that specific provisions of the Act shall apply in relation to insolvent partnerships, with such modifications as may be so specified. Part II of the Insolvency Act 1986, concerning Administration, was extended to insolvent partnerships by means of the Insolvent Partnerships Order 1994.

3.2. The amendments to Part II of the Insolvency Act 1986 which the Enterprise Act 2002 introduces will not automatically apply to insolvent partnerships and it is therefore proposed that the amendments are extended to insolvent partnerships, with any necessary modifications, by way of an amendment to the Insolvent Partnerships Order 1994, as set out below.

3.3. In the White Paper "Productivity and Enterprise: Insolvency – A Second Chance" (July 2001) the Government proposed, amongst other insolvency reforms, a streamlined administration process for insolvent companies. In the light of responses to the public consultation, the Insolvency provisions of the Enterprise Act include a number of developments from the white paper, including the new routes enabling an out-of-court appointment of an administrator by companies and their directors.

ADMINISTRATION OF COMPANIES

3.4.1 Changes to the existing corporate insolvency regime focus on restricting the use of administrative receivership and streamlining administration. The White Paper, ‘Productivity and Enterprise: Insolvency – A Second Chance’, recognised that the administration procedure introduced by the 1986 Insolvency Act was seen as an important tool in providing companies in financial difficulties with breathing space in which to put a rescue plan to creditors. However, it also recognised that the procedure could be improved.

3.4.2 The existing provisions contained in Part II of the Insolvency Act 1986 allow the court to make an administration order in respect of a company that is in financial difficulties. Broadly speaking the effect of such an order is to afford the company protection from its creditors whilst attempts are made to save the company or achieve a more advantageous realisation of the company’s assets than would be achieved on a winding up. The Enterprise Act seeks to improve the process of administration in the following ways:

3.4.4 The Insolvent Partnerships Order 1994 extends the existing administration provisions to insolvent partnerships but the Enterprise Act seeks to improve the process of administration and if the amended provisions are to be extended to insolvent partnerships an amendment to the Insolvent Partnerships Order will be necessary. It would appear sensible to extend the advantages of the new streamlined administration procedure to partnership businesses and the details of the changes introduced by the Enterprise Act, and the potential impact for insolvent partnerships should these changes be extended to them, are detailed below.

3.4.5 Although it is not proposed that the streamlined administration process should be different for insolvent partnerships, there are a few minor differences in how the procedures will operate due, mainly, to the fact that partnerships do not have floating charges. The only exception to this is that of an agricultural floating charge, which would necessitate an insolvent partnership following the procedures as set out for a company where one or more floating charge(s) exist.

Nature of Administration

3.4.6 Whether or not appointed by the court, an administrator is an officer of the court (as well as an agent of the company) and can only be appointed if qualified to act as an insolvency practitioner. An administrator may not be appointed if the company is already in administration. Generally, a company cannot go into administration if:

• a resolution for voluntary winding up has been passed; or
• a winding up order has been made (subject to an administration application being made by the liquidator of the company or a floating charge holder); or
• it is an insurance company.

3.4.7 These same constraints would apply to an insolvent partnership wishing to go into administration.

The Purpose of Administration

3.4.8 It is proposed that the nature and purpose of administration, as summarised below, will remain the same for partnerships as for companies, with the primary objective being the rescue of the partnership and as much of its business as possible.

3.4.9 To clarify the purpose of administration, and to place greater emphasis on company rescue, the existing 4 statutory purposes of administration detailed in the Insolvency Act 1986 are replaced. Under a single over-arching purpose, which will apply to all cases of administration, the administrator will be required to carry out his/her functions with the objective of rescuing the company as a going concern wherever it is reasonably practicable.

3.4.10 Company rescue in this context means the company continuing as a going concern, with all or a significant part of its business, and is most likely to involve the creditors agreeing to a Voluntary Arrangement or a scheme of arrangement under section 425 of the Companies Act 1985. A proposal that would result in a ‘shell’ company remaining would not be considered a rescue.

3.4.11 If the administrator considers that a company rescue is not reasonably practicable or that it would not produce the best result for creditors, s/he can pursue the second objective of achieving a better result for creditors. This might encompass situations where the company’s businesses are broken up and sold to one or more buyers as going concerns in order to achieve this outcome.

3.4.12 The third objective deals mainly with those cases where the company is not viable and has no business which can be sold as a going concern. All that can be done is to sell the company’s remaining assets in order to make a distribution to one or more secured or preferential creditors.

3.4.13 An administrator must have regard to the interests of all creditors. In situations where there are insufficient funds to pay the unsecured creditors the administrator must not unnecessarily harm their interests.

Appointment of Administrator

3.4.14 Currently, administrators can only be appointed by court order, and this route into administration has been retained for all those currently entitled to use it. It is proposed that the ability for creditors and directors to appoint an administrator through the court (by making an administration application to the court) will continue to be applicable to the creditors of a partnership and to the partners.

3.4.15 However, to speed up the process, it is intended that companies, their directors and the holders of floating charges will be able to appoint administrators without a court application and hearing. It is proposed that the out-of-court route for the appointment of an administrator will be extended to partnerships by allowing one or more of the partners to appoint an administrator in the same way that a director will be able to appoint an administrator through the out-of-court route.

Appointment by Court

3.4.16 A qualifying floating charge holder, a company or its directors, or one or more creditors of a company can apply to court for an administration order. The court may only make an order if it is satisfied that the company is or is likely to become unable to pay its debts and that the order is reasonably likely to achieve the purpose of administration.

3.4.17 Once an administration application has been presented the applicant will notify, amongst others, anyone who has appointed, or is entitled to appoint either an administrative receiver or an administrator. The application for administration cannot be withdrawn without the permission of the court.

3.4.18 On hearing an application for administration, the court will either make the order, dismiss the application or make any other order deemed appropriate, including treating the application as a winding up petition or making an interim order.

Appointment by company or directors

3.4.19 There will be an out-of-court entry route into administration for companies or their directors. A company or its directors will only be able to appoint an administrator if:

• The company has not been in administration (instigated by the company or directors) nor subject to a moratorium in respect of a failed CVA under Schedule A1 to the Insolvency Act 1986 in the previous 12 months.
• The company is or is likely to become unable to pay its debts;
• There is no outstanding winding up petition in respect of the company;
• The company is not in liquidation; and
• There is no administrative receiver or administrator in office.

3.4.20 The company or directors must give any qualifying floating charge holders at least 5 business days notice in writing of their intention to appoint an administrator in this way. The ‘notice of intention to appoint’ will identify the proposed administrator and during the notice period the floating charge holder may either agree to the proposed appointment or appoint their choice of administrator. The ‘notice of intention to appoint’ will also be filed with the court, accompanied by a statutory declaration stating that the application meets all the necessary criteria. Once the notice of intention to appoint is sent to the qualifying floating charge holder and filed at court, the interim moratorium commences.

3.4.21 If the qualifying floating charge holder consents to the company’s or directors’ nominee or does not respond to the notice within 5 days, the company/directors must file a ‘notice of appointment’ no more than 10 business days after filing their ‘notice of intention to appoint’. If there is no qualifying floating charge holder, the company/directors file the ‘notice of appointment’ at court together with the statutory declaration stating that the application meets all the necessary criteria.

3.4.22 In both cases this notice must be accompanied by a statement from the administrator consenting to act, and stating that in their opinion the purpose of administration is reasonably likely to be achieved. Following this, the administrator is automatically appointed and takes office once the ‘notice of appointment’ and accompanying documents are filed at court. The company or directors must then notify the administrator of their appointment.

3.4.23 If, for whatever reason, the administrator’s appointment is discovered to be invalid, the court may order the person who made the appointment to indemnify the administrator against liability.

Appointment by the holder of a floating charge

3.4.24 This, of course, will not apply to partnerships other than in respect of an agricultural floating charge, but for companies there will be an out-of-court route into administration for the holders of qualifying floating charges. Qualifying floating charge holders (including the holders of an agricultural floating charge) will be able to appoint an administrator of their choosing, providing that:

• The floating charge on which the appointment relies is enforceable, which in this context means that the charge-holder is entitled to call in their security;
• S/he has given notice to the holder of any qualifying floating charge which has priority over his/her own floating charge;
• The company is not in liquidation nor has a provisional liquidator been appointed; and
• Neither an administrative receiver nor administrator is already in office.

3.4.25 Before the administrator takes office, the qualifying floating charge holder must file a notice of appointment with the court identifying the administrator and including a statement from the administrator consenting to the appointment. Attached to this will be a statutory declaration by the qualifying floating charge holder stating that they have a qualifying floating charge - which may be one or more floating charges (together with other security) - over the whole or substantially the whole of the company’s property, and that this is or was enforceable on the date of the appointment.

Administration application – special cases

3.4.26 A qualifying floating charge holder may apply to court for an administration order without the need to demonstrate that a company is or is likely to become unable to pay its debts. However, the court must be satisfied that the applicant would be entitled to appoint an administrator by means of an out-of-court appointment, i.e. that the floating charge is enforceable.

3.4.27 If there is a winding-up order in relation to the company that would prevent an out-of-court approach, the qualifying floating charge holder can still apply for administration through the courts. If an administration order is made, the court will then discharge the winding up order. The liquidator may present an application for administration.

3.4.28 If an administrative receiver (AR) is in office, the court must dismiss an application for administration unless:

• The appointor of the AR consents to the administration order; or
• The court considers that the appointee’s security may be set aside if an administration order were made.

Effect of administration

Dismissal of pending winding-up petition

3.4.29 If the court makes an administration order, it will dismiss any outstanding winding-up petitions that have not already been dealt with. However, if a company goes into administration as a result of a qualifying floating charge holder’s appointment of an administrator, then any winding-up petition that has not been dealt with will be suspended for the period of the administration.

Dismissal of administrative or other receiver

3.4.30 If an AR is in office, the court must dismiss an application for administration unless the appointee of the AR consents to the administration order or the court considers that the appointee’s security may be set aside if an administration order were made. On the making of an administration order, an AR will vacate office, and a receiver will do so if requested by the administrator. The AR’s and receiver’s right to remuneration are secured, along with any entitlement to an indemnity that they may have had, ahead of the claims of the security-holder who appointed them. However, the right to payment is subject to the moratorium that comes into effect on the commencement of the administration.

3.4.31 It is proposed that when the court makes an administration order in respect of a partnership, any outstanding winding up petition that has been presented against that partnership would be dismissed in the same way as a winding up petition against a company will be dismissed, or suspended in the case of an administrator appointed by the holder of an agricultural floating charge. Any provisional liquidator that is in post will vacate office and any receiver that is in post will vacate office if required to do so by the administrator.

Moratorium on insolvency and legal proceedings

3.4.32 An interim moratorium will apply from the date that the application for the administration, or the notice of intention to appoint is filed at court. Once a company is in administration (i.e. an administration order has been made or the administrator has been appointed following the relevant filings by the directors, the company or the qualifying floating charge holder), the moratorium, which is a feature of administration, takes effect. This means that a resolution cannot be passed, or an order made, to wind up the company except in certain circumstances (i.e. public interest petitions). No steps can be taken by creditors to enforce their rights without the consent of the administrator or the permission of the court.

3.4.33 The moratorium on any creditors’ actions to enforce their rights against the partnership will take effect from the date of the appointment of the administrator unless either the administrator or the court gives permission for any such action.

Publicity

3.4.34 While a company is in administration, every business document, e.g. invoices, orders for goods and services, business letters, issued by or on behalf of the company or the administrator must identify the administrator and state that the affairs, business and property of the company are being managed by him/her.

3.4.35 The need to publicise the appointment of the administrator and the fact that the partnership business, affairs and property are being managed by him/her will apply to partnerships in the same way as to companies.

Process of Administration

3.4.36 It is envisaged that the processes and time-scales for administration, as set out in the Enterprise Act and summarised below, will apply equally to a partnership business that goes into administration, as will the functions of the administrator and the challenges to his/her conduct. With specific reference to the administrator’s ability to appoint and dismiss directors, we would propose to retain the relevant provisions of the Insolvent Partnerships Order 1994 that allow the administrator to prevent any person from taking part in the management of the partnership business and to appoint any person to be a manager of that business.

3.4.37 In all cases, once the administrator has been appointed, s/he will send notice of the appointment to the company and its creditors as soon as is reasonably practicable and send notice to the Registrar of Companies within 7 days of the appointment. S/he will also require, by notice, a representative(s) of the company (an officer of the company, employee, etc) to provide a statement of the company’s affairs within 11 days of receiving the notice. This statement must be verified by statement of truth and give particulars of the company’s property, debts and liabilities, as well as the details of each creditor and any security they hold.

Administrator’s Proposals and Meeting of Creditors

3.4.38 Within 8 weeks of the administration commencing, the administrator is required to make a statement setting out proposals for achieving the purpose of administration, although this period can be extended with the permission of the court or with the creditors’ agreement. The administrator will send a copy of the proposals to the Registrar of Companies, the company’s creditors and each member of the company (the latter obligation may be fulfilled by publishing a notice undertaking to provide a copy on their application).

3.4.39 Each copy of the administrator’s proposals sent to creditors must be accompanied by an invitation to an initial creditors’ meeting that must be held within 10 weeks of the administration commencing, and on 14 days’ notice. The time periods may be extended with the permission of the court or the consent of creditors. If the administrator does not consider that it is reasonably practicable to rescue the company and/or achieve a better result for the creditors, his/her statement must state why.

3.4.40 The administrator’s proposals will take into account the purpose of administration, as set out in paragraphs 3.4.8 to 3.4.13 above.

3.4.41 The administrator will present a copy of his/her proposals at the initial creditors’ meeting. If the administrator concludes that the company can be rescued as a going concern, s/he will put the proposal to the creditors and they will decide whether to accept an arrangement under which they will agree to accept less than full payment of their debts. This will usually be through a Company Voluntary Arrangement or a scheme of arrangement under section 425 of the Companies Act 1985. The creditors could decide to reject the proposals, or with the consent of the administrator, amend them.

3.4.42 If company rescue is not deemed reasonably practicable, the administrator will explain why this is so, and put the proposal to the creditors setting out how s/he plans to achieve a better result for the company’s creditors as a whole (e.g. as a result of selling the company’s businesses as going concerns to one or more buyers). The creditors will vote on whether to accept, modify or reject the proposal.

3.4.43 Where it is anticipated that there will be no funds available from the insolvent estate for unsecured creditors, outside that flowing from the abolition of Crown preference, the administrator will not be required to call a meeting of the creditors. However such a meeting may be requisitioned by creditors whose debts amount to at least 10% of the total debts of the company.

3.4.44 An administrator’s statement of proposals may not include any action that affects the rights of secured or preferential creditors without their consent.

3.4.45 A creditors’ meeting may only modify the administrator’s proposals with his/her consent. The administrator cannot subsequently make any substantial revisions to the proposals without first obtaining the agreement of the creditors.

3.4.46 After the conclusion of the initial creditors’ meeting (and any subsequent meeting), the administrator will report any decision taken to the court and the Registrar of Companies. If the creditors failed to approve the proposals, the court may provide that the administrator’s appointment shall cease to have effect, adjourn the hearing conditionally or unconditionally, make an interim order, or any other order deemed appropriate.

3.4.47 Anything that is required to be done at or by a creditors’ meeting may be done by correspondence, including communicating electronically and by telephone or fax.

Functions of the Administrator

3.4.48 The administrator may do anything necessary for the management of the affairs, business and property of the company, including removing or appointing a company director.

3.4.49 An administrator may make distributions to secured and preferential creditors without permission of the court. S/he may make distributions to unsecured creditors with the permission of the court; or to creditors if s/he thinks that such a payment is likely to assist the achievement of the purpose of administration.

3.4.50 The administrator may dispose of property that is subject to a floating charge as if the property were unencumbered, without the consent of the floating charge holder. However, the floating charge holder has first call on the proceeds of sale.

3.4.51 The court may give the administrator the power to override the rights of the holder of a fixed security over the company’s property, and to dispose of the property in question as if it were owned by the company unencumbered. However, the holder of the fixed security has first call on the proceeds of any such sale.

3.4.52 The court may give the administrator the power to sell property subject to a hire-purchase agreement as if the property in question were owned by the company unencumbered. However, the hire-purchase creditor has first call on the proceeds of sale.

Challenge to the administrator’s conduct of the company

3.4.53 Any creditor or member of a company in administration may apply to the court if they believe that the administrator has acted, or proposes to act, in a way that could unfairly harm his/her interests; or where they claim that the administrator is not performing his/her functions as efficiently as reasonably practicable.

3.4.54 The court may grant relief, adjourn the hearing conditionally or unconditionally or make an interim or other order deemed appropriate. However, an order may not be made if it would impede or prevent the implementation of an approved voluntary arrangement or an arrangement sanctioned under section 425 of the Companies Act, or the Administrator’s proposals, where the challenge is made more than 28 days after the approval of those proposals.

Misfeasance

3.4.55 If an interested party considers that the administrator has misapplied or retained the company’s property, has become accountable for property, has committed a breach of a fiduciary or other duty in relation to the company or has been guilty of misfeasance, they can apply to the court who may order the administrator to repay, restore or account for the property, pay interest, or contribute by way of compensation to the company’s property for breach of duty or misfeasance.

Ending administration

3.4.56 As with companies in administration, it is proposed that the administrator of a partnership will have the power to make distributions to secured and preferential creditors and to unsecured creditors with the permission of the court. When there is a surplus of assets the administrator will be able to end his or her appointment by way of a notice to the court and each of the creditors and the partnership will enter into a Partnership Voluntary Arrangement with the former administrator acting as the trustee. Alternatively, the administrator will be able to apply to the court for a winding up order to be made against the partnership in order that dividends can be made to unsecured creditors. If there are no realisations to distribute to unsecured creditors, then the administrator will be obliged to dissolve the partnership.

3.4.57 The administrator will automatically vacate office one year after the date the administration commenced. However, this term may be extended for an additional period of up to six months with the consent of creditors, or/and for as long as deemed necessary by the courts.

3.4.58 The administrator shall apply to the court to end the appointment if s/he thinks that the purpose of administration cannot be achieved, that the company should not have entered into administration or if required to do so by a creditors’ meeting.

3.4.59 If the administrator thinks that the purpose of administration has been sufficiently achieved s/he will file notice with the court and the Registrar of Companies and send copies to all the company’s creditors. The administrator’s appointment will end when the notice is filed.

Voluntary Winding Up

3.4.60 The administrator may end the administration and convert the proceedings into a voluntary winding up. This will occur if the preferential and secured creditors have been paid all to which they are entitled, or sufficient funds are held on their account and there is money available for the unsecured creditors. The administrator will file a notice with the Registrar of Companies and, as soon as is reasonably practicable, send a copy to each of the company’s creditors. Once the notice has been filed, the administrator’s appointment ends, the company proceeds to undergo a creditors’ voluntary winding up and the administrator becomes the liquidator of the company unless the creditors have appointed an alternative liquidator.

Dissolution

3.4.61 If after making distributions to preferential and secured creditors, the administrator finds that that company has insufficient assets to make a distribution to its unsecured creditors, s/he may file notice with the Registrar of Companies and send a copy to each of the creditors. The company will be considered dissolved after 3 months of the filing of the notice. However, it will be open to the court, on the application of the administrator or any other interested person, to defer the dissolution of the company and any such order should be filed with the Registrar of Companies.

3.5.1 Although it is not proposed that the streamlined administration process should be different for insolvent partnerships, there are a few minor differences in how the procedures will operate due, mainly, to the fact that partnerships do not have floating charges, except for an agricultural floating charge, which would necessitate an insolvent partnership following the procedures as set out for a company where one or more floating charge(s) exist.

Administration of Partnerships

3.5.2 It is proposed that the nature and purpose of administration will remain the same for partnerships as for companies.

Appointment of Administrator

3.5.3 The ability for creditors and directors to appoint an administrator through the court (by making an administration application to the court) will be applicable to partners.

3.5.4 The out-of-court route for the appointment of an administrator will be extended to partnerships by allowing the partners or a majority of the partners or the holder of a qualifying agricultural floating charge to appoint an administrator in the same way that a director or holder of a qualifying floating charge will be able to appoint an administrator through the out of court routes.

Effect of Administration

3.5.5 When the court makes an administration order, then any outstanding winding up petition that has been presented against the partnership will be dismissed, in the same way as a winding up petition against a company will be dismissed. Any outstanding winding up petition that has been presented against the partnership will be suspended in the same way as a winding up petition against a company will be suspended in those cases where the administrator is appointed by the holder of an agricultural floating charge. Any provisional liquidator that is in post will vacate office and any receiver that is in post will vacate office if required to do so by the administrator.

3.5.6 The moratorium on any creditors’ actions to enforce their rights against the partnership will take effect from the date of the appointment of the administrator unless either the administrator or the court gives permission for any such action.

3.5.7 The need to publicise the administrator and the fact that the partnership business, affairs and property are being managed by him/her will apply to partnerships in the same way as to companies.

Process of Administration

3.5.8 It is envisaged that the processes and time-scales that are detailed in the Enterprise Act will apply equally to a partnership business that goes into administration, as will the functions of the administrator and the challenges to his/her conduct.

Ending Administration

3.5.9 As with companies in administration, it is proposed that the administrator of a partnership will have the power to make distributions to secured and preferential creditors and to unsecured creditors with the permission of the court. Where there is a surplus of assets the administrator will be able to end his or her appointment by way of a notice to the court and each of the creditors and the partnership will enter into a Partnership Voluntary Arrangement, with the former administrator acting as the trustee. Alternatively, the administrator will be able to apply to the Court for a winding up order to be made against the partnership in order that dividends can be made to unsecured creditors.

3.5.10 If there are no realisations to distribute to unsecured creditors, then the administrator will be obliged to dissolve the partnership.

3.6 Following consultation, it is intended that the reformed administration procedure will be extended to insolvent partnerships by an amendment to the Insolvent Partnerships Order 1994, to come into force three months after it is made.

Issues

4.1.1 The Insolvency Act 1986 sets out the regime for dealing with the affairs of insolvent companies, including the administration procedure, which is extended to insolvent partnerships by the Insolvent Partnerships Order 1994.

4.1.2 The Enterprise Act 2002 amends the administration procedure in order to promote collective insolvency procedures where the administrator has to act in the interests of all creditors and where those creditors have an opportunity to influence the outcome.

Objective

4.1.3 The corporate insolvency provisions of the Enterprise Act streamline the procedure of administration, a collective court-based procedure, to make it more efficient and accessible to ensure that companies do not fail unnecessarily. The streamlined procedure should be extended to Insolvent Partnerships.

4.2.1 There might be increased pressure on the court system if the numbers of administration orders under the existing procedure were to increase substantially. However it is intended that this impact should be minimised by the streamlining of the administration procedure.

4.3.1 Option 1: Rely on the existing legislation. The current insolvency regime for partnerships in the UK is prescribed principally by the Insolvent Partnerships Order 1994. This option would leave the current system unchanged and would be the cheapest, short-term, option. However the paper "Productivity in the UK" published in June 2001 indicated the Government's intention to bring forward proposals to ensure that collective procedures have clear primacy in corporate insolvency. This would give all interested parties the opportunity to influence the outcome. The objectives outlined above are all based on this intention and keeping the status quo would not be working towards them. It should also be borne in mind that there are likely to be long-term costs in failing to provide more effective mechanisms for rescuing viable partnership businesses. There would be no particular benefit to partnership businesses in adopting this approach.

4.3.2 Option 2: Amend existing legislation to extend the provisions of the Enterprise Act relating to the streamlined administration procedure to insolvent partnerships. This option is likely to be the most effective means of achieving the objectives.

4.3.3 Option 1: Maintaining the status quo will result in insolvent companies benefiting from a streamlined administration procedure that will be unavailable to insolvent partnership businesses.

4.3.4 Option 2: There will be equality for insolvent partnership businesses.

4.4.1 Option 1 There will be no additional costs placed on insolvent partnership businesses.

4.4.2 Option 2: Amendments will improve the administration procedure for insolvent partnerships and will help to ensure that they are able to avail themselves of the same rescue procedures as other businesses. This should make it less likely that viable partnership businesses go to the wall.

4.4.3 From a wider perspective the benefits will be seen in the form of increased survival rates and recovery rates for creditors through the streamlined administration procedure. The introduction of a more efficient administration procedure for insolvent partnerships would also be expected to provide greater numbers of rescues.

4.4.4 As far as direct benefits are concerned, Option 1 one will be neutral, as it does not advocate change. Option 2 will potentially result in the benefits referred to above in terms of survival rates and improved returns to creditors.

4.5.1 There would be neither costs nor benefits under option 1, as no change would take place.

4.5.2 There would be familiarisation and training costs for option 2. These costs would fall mainly on insolvency practitioners, those providing financial/legal advice to companies and financial institutions, although there will likely be some familiarity with the new procedures quite quickly as a result of changes to the administrative process for companies.

4.5.4 Option 1 places no burden on any business sector.

4.5.5 Option 2 imposes no additional costs for business in general but there will be a need for insolvency practitioners to familiarise themselves with the revised partnership regime. It is anticipated that this cost will largely be absorbed into existing regular staff training programs and continuing professional education and will, to a large extent, be necessitated by the introduction of the streamlined procedures to company administrations.

4.7.1 There have been extensive previous consultations and the Enterprise Act, which introduces the streamlined administration procedure to companies, which received Royal Assent on 07 November 2002, involved consultation with all of the relevant parties, including the insolvency profession, city lawyers, bankers, the legal profession and accountancy profession.

4.8.1 Option 2 is recommended as the most effective means of ensuring the survival of viable partnership businesses and of improving the returns made to creditors. The overall costs of this option are unlikely, for the reasons set out above, to be material as the regulatory burden on businesses generally will be minimal and on the professional, financial and voluntary sectors, restricted to training, system and familiarisation costs.

4.9.1 There are no new offences created by the partnerships proposals and the effectiveness of the new procedures will be monitored after the legislation has been in operation for three years.

7. Departments should monitor and evaluate consultations, designating a consultation co-ordinator who will ensure the lessons are disseminated.