In the City
Uncorking Cork
Tony Rudd
rr he contents of the Cork Report I don't exactly bubble and fizz in the glass like champagne. But then that's not necessarily Sir Kenneth Cork's fault; his committee, set up five years ago to view the laws of insolvency in this country and their practice, was not given the lightest and most entertaining of subjects. But it also has to be said that their report covering 500 pages and 250,000 words in length is not the lightest to read. It's the kind of thing which risks being left on the shelves. Certainly so far as its practical chances of forming the basis of some early legislation are concern- ed, the government hasn't been given the easiest starting point. That being so, the temptation in Whitehall not to start at all may prove irresistible. This would be very bad news indeed. For there is great need for legislation in this area. As one observer put it recently, if the government thinks that it' is safe to put this subject out of mind and toy come back to it in five or more years' time they may well find that when they do they won't just be shutting the stable door when the horse has bolted, but doing so when the horse has been carried off to the knacker's yard.
What Sir Kenneth's committee has come up with is a full review of the state of the law and practice on insolvency, together with a host of recommendations for straightening out anomalies, increasing ef- ficency and, in some cases, bringing theory and practice up to the requirements of the modern days in which we live.
Some of the recommendations seem to be overdue. For instance, the priority in in- solvency given to debts owing to the government and to local government should, Sir Kenneth Cork's committee recommend, be substantially diluted. The position of the small-time consumer who runs up hire-purchase debts which can't be met should be dealt with in a much more practical and humane manner than is the case now. Practical steps should be taken to help companies actually avoid insolvency and here Sir Kenneth's committee recom- mend the creation of a new figure, the ad- ministrator, who could be brought in to sort matters out before the final crisis.
The question which arises, however, is whether it is enough to implement the many recommendations of Sir Kenneth's commit- tee, even if the government was so minded. Will it answer the challenge of our time if we have a nice new bright and shiny in- solvency Act on the statute book in 1984 (such an appropriate year)? One wonders. In the same way that they say that war is too important to leave to generals, perhaps the time has come when insolvency is too im- portant to leave to accountants and lawyers. For what is involved is literally the life and death of companies and when these are the organisations which are responsible for creating the wealth which keeps body and soul together, we are all interested, not just the accountants and the lawyers. Fur- thermore, we all have a stake in the healthy continuance in business of the companies which give employment and, in a free enter- prise system, are the only organisations of consequence channelling the busy activities of our day-to-day lives.
The fact is that the state of the corpora- tion sector in this country is very poor in- deed. Business is louly. Unemployment, as we know, is over three million. The propen- sity to import is rising all the time. The latest figures are very serious in this regard. So it's no longer enough for the community just to watch the individual units in in- dustry slip over the edge of insolvency and disappear. For once they have gone they hardly ever come back. Gaps proliferate, the grass grows over where they used to be and ultimate recovery is made more dif- ficult. We know that the pressure on the corporate sector is going to remain heavY and may even get worse as the world economy flounders on during the next few years. What we need is a system for helping companies in distress rather than just a method of dealing with the casualties in a clean and clinical manner.
The answer, as we have said before in this column, is to import into the law and the handling of insolvency in this country the `Chapter 11' concept, embedded in the 1919 bankruptcy laws of the United States. The point about the 'Chapter 11' approach Is that it provides a mechanism for holding off the claims of the creditors while a cony pany reorganises itself under the shelter Of the courts so that it can go forward again with an endeavour to solve its problems, in- cluding the payment of its debts, by the route of continued existence. This solution can be attacked on the basis that it leaves inefficient management in place and does not visit upon it the full penalty of failure- This is a criticism which has some justifica- tion. The Chapter 11 rule is an amelioration of the simple and fairly harsh approach to insolvency which originally came into fashion in this country with the enactment of Joe Chamberlain's famous and monumental Bankruptcy Act of 1883. That set both the moral and commercial tone for the way we have dealt with things in this country ever since. It has even set the tone of the Cork committee. It was as though Chamberlain was a hidden and invisible member of the committee itself. But times have moved on since then. The fact is, Wer, cannot any longer afford the full rigours 01 the Joe Chamberlain approach. It may be said that not to insist upon full insolvency when a company cannot meet its obligation is to be too soft. But if we are practical about the matter, we must recognise that society is very different today from what it was in 1883. The great rip-off of our time is inflation. This has played ah; solute havoc with the so-called sanctity 0' debts. Any organisation, and particularly a government, Which has managed to borrow long in money terms has perpetrated the most amazing swindle upon the lender — as any holder of War Loan for this last 35 years could testify, with feeling. In the age of the great inflation through which w.e have been living the sanctity of contracts IS just not what it was. So to the extent that the argument against the Chapter 11 approach is based on this ground, it must be regarded as weak. More serious is the fact that the Chapter 11 approach is a complete break with British tradition in this area. And last" ly, a very serious matter this, bringing Chapter 11 into UK practice would meal/ importing an American legal idea into our system. This would be bound to be 011' popular in many quarters. However, theSe difficulties should not be allowed to get in the way of doing so. When Whitehall gets round to considering a new insolvency Act as well as having the Cork Report to hand it is very much to be hoped that the 19', American Act will also be on the desk, open at Chapter 11.
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