First Law

Enterprise Bill for entrepreneurs (first published in 2002)

Law Direct - Tuesday 25th February 2003

The new Enterprise Bill's wide ranging proposals aim at creating a stronger and fairer marketplace for small businesses and encouraging entrepreneurs to take risks. It criminalises cartels and makes significant changes to insolvency practice so that honest bankrupts are not penalised. Anthony Armitage who launched the law tendering and legal auditing business First Law tells Philip Hoult why he cautiously welcomes this new Bill...

The Government's Enterprise Bill has ambitious aims. It sets out to create stronger, fairer competition and open dynamic markets, to deliver a better deal for consumers and to make the insolvency regime more supportive of enterprise.

Among the wide-ranging proposals are significant changes to insolvency practice, which will see directors bankrupted when their businesses fail subject to just a 12-month restriction on their ability to act as a company director rather than the current three-year ban. Dishonest or reckless bankrupts will on the other hand face stiffer penalties.

There will also be restrictions on the use of administrative receiverships with administration, where all creditors rather than one secured creditor have their interests taken into account, becoming a more favoured route for failing companies.

This move - along with the abolition of Crown Preference which allows the Inland Revenue to claim ahead of other creditors - is intended to benefit small businesses in particular, which have often suffered when the banks take all that they can out of a company.

Apart from the insolvency changes, other important measures include the criminalisation of cartels - allowing for the first time the authorities to prosecute the individuals who set them up - and the removal of political involvement in merger control with a new competition-based test in its place.

So will the proposals actually work?

Anthony Armitage, the former Davies Arnold Cooper property partner who launched the law tendering and legal auditing business First Law in 1998, is unsure, particularly when it comes to achieving the Bill's main aim of encouraging enterprise.

"I'm not sure whether it is going to make much of a difference - either you are an entrepreneur or you are not," Armitage points out. He says that he was well aware of the insolvency regime thanks to his past work as a lawyer - especially time spent at Allen & Overy, one of the top practices for this work.

But he adds that these considerations were low down on his list when deciding to make the break and go into business on his own. Making the potential punishments for honest bankrupts less heavy are not therefore likely to encourage a whole host of new entrepreneurs.

Armitage, who is a member of the executive committee of the Law Society's Commerce & Industry Group, does however welcome the restrictions in the use of administrative receiverships, a measure that has gone down unsurprisingly badly with lenders.

"The administrative powers given to Administrative Receivers were very unfair to companies because the lenders get this elevated and powerful position merely because - often against the companies' better judgement - they could negotiate a fixed charge," he says. "If they get the fixed charge then they get these incredibly effective powers should the business fail and so they get their money back. I did a lot of work for administrative receivers at Allen & Overy and I could see the injustice of it."

If there is one improvement to the insolvency regime that Armitage would like to see that would benefit small businesses and which is not addressed in the Enterprise Bill, it is some form of cap or control on the fees that insolvency practitioners are able to charge in such situations.

"There is no control over what those fees are," he argues. ""I have witnessed many times an insolvency practitioner cleaning up and leaving little to the rest of the creditors. The amount of times I have seen costs spiral out of control - they could really name their price and get away with it."

Of the remaining proposals, he approves in particular of the criminalisation of cartels as a deterrent to such anti-competitive practices, which he believes exists among certain sections of the legal market.

"The difficulty with cartels however is proving their existence because getting evidence is always going to be a problem," he says. The law may change, but will it make it any easier to catch the operators of the cartel and prove their wrongdoing?

Nevertheless Armitage gives the proposed legislation a cautious welcome, although he suggests we will have to wait and see if it truly has substance.

"The Bill has got the right intentions and it is giving the right signals," he says. "It is amazing to think, if you look back 10 years, that a Labour Government would be introducing an Enterprise Bill like this."