A Review of Company Rescue and Business Reconstruction Mechanisms
The Association of Chartered Certified Accountants (ACCA) is pleased to have the opportunity to respond to the above report produced by a review group established by the DTI and HM Treasury.
Crown preference
We agree with the recommendation made in the Report that the Inland Revenue and HM Customs & Excise should take a more pragmatic and less rigid approach to voluntary arrangement proposals. The insistence of the Revenue and Customs in receiving their full claim as a condition of approval is clearly a factor in rescue proposals being rejected in favour of liquidation. Although outright abolition of Crown preference in CVAs would doubtless lead to more arrangements being approved, it would lead inevitably to the lost revenue being recovered from taxpayers generally by alternative means. Ideally, we would prefer the Revenue and Customs to accept the principle that, provided a proposed arrangement was likely to provide them with a substantial return (rather then 100p in the £) and at the same time lead to a successful rescue, their officials should have discretion to approve it.Financial health checks
We endorse the comments made in the Report regarding the low level of awareness among directors of their legal obligations and the effect that this has on companies' survival prospects.ACCA feels that the link between the deficiency of board-level skills and business failure risks being exacerbated as the result of two related changes which are likely to emerge from the Company Law Review, namely the material expansion of directors' duties and the entitlement of all 'small' private companies to operate without either an auditor or a company secretary. Given the evidence that very many directors in the SME sector lack both an awareness of statutory obligations and adequate financial management skills, we think that these changes will need to be carefully monitored for their impact.
We therefore welcome any measure which encourages businesses to seek external financial help. We take the view that an annual audit, supplemented by appropriate management advice, is the best financial support tool for small firms but we will certainly co-operate with any work, as suggested by the Report, to develop a standardised form of 'financial health check' for companies. ACCA has in fact devised special procedures along these lines for practitioners to offer their clients and we will be happy to discuss these with the Small Business Service in due course.