Crown preferential status removed

The government is to remove the taxman's right to recover unpaid taxes from insolvent companies ahead of other creditors.

The abolition of crown preferential status for the Inland Revenue and Customs & Excise was one of a raft of measures Gordon Brown announced at the launch of the Enterprise for All initiative (see also p 15).

The announcement was universally welcomed by the insolvency profession, which has been calling for the abolition of crown preferential status (CPS) for several years. It says that the Revenue and Customs are slow to warn ailing businesses and are unhelpful in recoveries. IPs say that the tax authorities lack any incentive to prevent a company from becoming insolvent because CPS guarantees them a large share of the returns from a company in liquidation.

The government will also propose that administrative receiverships should be phased out and replaced with collective procedures, such as administration and company voluntary arrangements. Roger Oldfield, president of R3, the association of business recovery professionals, said: 'We don't believe there's any financial benefit in replacing receivership with collective procedures. In both cases the IP acts as a receiver and has a duty of care to the company and all the creditors, regardless of how many creditors appoint him.'

The Insolvency Practitioners Association said that 'collective procedures give better returns to creditors, but they must be strictly controlled'. The IPA is concerned that the move could open the doors to 'rogue debt counsellors'.

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