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Insolvency: Banks Must Do More To Help Small Business

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Welcome news for the UK economy on Monday, as the British Bankers' Association (BBA) released financial data for the month of June.  This showed lending to small businesses rose by £391 million, 50,000 new small business banking relationships were established, and deposits from small business grew by £577 million.

Chancellor Alistair Darling has, however, asked the BBA to do more to help small businesses: "in some areas there have been improvements, [but] in others there's an awful lot more to do."

Insolvency Service statistics show that 4,941 companies went into liquidation in the first quarter of 2009.  Many of them were refused vital credit from crisis-stricken lenders still reeling from the global banking collapse.

The Government announced an asset purchase facility to tackle the credit-crunch in January.  The Bank of England warned it would take time for the programme to kick in, but issued a report on Monday showing an improving market for corporate credit, which should benefit the wider economy given time.

Meanwhile, Bloomberg reports the insolvency industry is booming.  In the autumn, the worldwide financial meltdown forced a number of household names, such as Woolworths, Setanta Sports, MFI and Zavvi, into administration.

Administrators Deloitte hired 100 additional people earlier this year to cope with the demand for its services:  "Activity levels are up over 50% compared to 12-18 months ago and debt restructuring work is up 100%," said a spokesperson.

Insolvency Law

Under section 123 of the Insolvency Act 1986, corporate insolvency is defined alternatively as having insufficient assets to meet all debts (balance sheet insolvency) or unable to pay debts as and when they fall (cash flow insolvency).  The procedures open to an insolvent company fall into three main categories. They are:

The first two procedures provide the potential for the rescue of the company or its business, while the last one does not.

Note: Insolvency laws vary by jurisdiction.  The law in England and Wales is the same, but Northern Ireland and Scotland have different rules.  This blog is concerned solely with the law in England and Wales.  For information on insolvency outside England and Wales, visit the respective websites for the national insolvency service organisations in Northern Ireland and .

** Additional Information & Advice **

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