Helping businesses to deal with insolvency

One approach to dealing with insolvency would be to close down every insolvent business, sell off its remaining assets, and share them out among its creditors. However, this would be very wasteful. It involves breaking up productive assets and shedding many jobs, which would harm the UK economy. For example, the government would lose income tax revenues; it would also have to pay out more in unemployment benefit.

Fear of failure and insolvency can be a major inhibitor of entrepreneurship. Insolvency law offers alternatives to companies and individuals in financial difficulties, not all of which necessarily lead to the closure of the business. Insolvency proceedings are a last resort.

The Insolvency Service became an executive agency of the Department of Trade and Industry (DTI) in March 1990. The Official Receiver, a civil servant and an officer of the court, has existed since 1883. The main tasks of the Service are:

• to provide an overall framework for dealing with cases of insolvency

• to provide a system for dealing with the assets and liabilities of insolvent businesses that is fair to the owners and creditors of those businesses

• to ensure that, if possible, insolvency law allows businesses to continue as going concerns and are not closed down needlessly

• to report misconduct by bankrupts and by directors of companies

• to help the financial rehabilitation of bankrupts.