Failure looms large for 'vague' insolvency reform

New regulation designed to help save struggling businesses will fail miserably, the insolvency profession has warned.

But the profession criticised the government for not providing clearer information, warning that the reform would instead create confusion for all parties and not achieve its desired effect.

European reform of the Transfer of Undertakings (Protection of Employment) (TUPE) regulation will be adopted by the government from 6 April. It contains options to enable more insolvent businesses to better handle employment issues and give them an improved chance of operating as going concerns.

Ron Robinson, president of the business recovery professionals’ body R3, said the draft had been made in such ‘vague language’ that it was not clear what type of insolvency proceeding related to what regulation, which could lead to buyers steering clear of struggling companies.

‘Because it’s so badly drafted, we won’t know how the rules will affect the UK until cases goes to court,’ he said. ‘So instead of it going to court, businesses will fold. We are urging the government to clarify the rules.’

Begbies Traynor senior London partner Nick Hood said the guidelines were ‘unclear’. ‘There is a lack of clarity,’ Hood said.

Currently, a buyer of an insolvent business would have to take on the employees and their liabilities. The chance of reaching agreement with all parties is rare and the issue of employee liabilities often scuppers deals. The guidelines offers employees the opportunity to reach agreement if changing their rights will allow the sale of the business.

But the rules require union agreement or the agreement of each individual employee.