Chapter 11 again – Heffer, Nelson, the Adam Smith Institute and the failure to question Cameron

I make no apology for returning to the issue of David Cameron’s speech to the CBI on the introduction of a Chapter 11 type procedure into the UK insolvency system.  As I have explained in previous posts Cameron’s message on this topic is somewhat confusing given that the reasons he gives for the system he advocates are addressed at the moment by our law of administration – that has been in effect since 15th September 2003 – following the coming into force of the Enterprise Act 2002 and its amendments to the INsolvency Act 1986.

Why return to this topic?  Well, in my initial post on it I mentioned that in my view it indicated a problem in journalistic standards – that no-one questioned Cameron on the similarity between his proposals and the current law.  Instead, the message spun by the Conservatives that Cameron better understands how to respond to the current economic climate than the current government (which through the person of Peter Mandelson pushed for the reforms to administration that have led the system to the position that it deals with the policy concerns that Cameron identified) is being promoted in various newspapers, and the blogs of Conservative candidates.

For example, the Daily Mail in its leader column states,

“In the past couple of days, he has also shown himself ahead of the Government in recognising the scale of our economic crisis and suggesting remedies to ease the pain so many are now experiencing.”

This of course refers to Cameron’s CBI speech with its proposals to help business by introducing a system identical to the current system with one exception – the managers of the failing business would under Chapter 11 be kept in place, while administration removes them.    That the nub of the distinction is not being questioned is surprising.  Why should the management of a failing business remain in place?

Or look at, the Conservative candidates in their blogs.  for example, the Conservative candidate in Aberdeen South Mark Jones who reprints a condensed version of the press release of Cameron’s speech but has not answered my comment

“I wonder if you could explain how Mr Cameron’s proposed policy objectives differ from the law of administration currently in place (under Insolvency Act 1986 as amended by Enterprise Act 2002) as I must confess I can see no difference between the two – and the failure to appreciate what the current law is (and that it is virtually identical to what he proposes) seriously undermines Mr Cameron’s credibility.”

Some credit to Mr Jones though.  At least he allows comments.  The other Conservative candidate who has blogged on this (using a virtually identical entry for reasons best known to herself) is Eleanor Jupp who doesn’t.

I mentioned yesterday that Fraser Nelson had been critical of Cameron’s proposals in The Spectator.  Nelson’s views are shared by Cameron groupie [heavy irony] Simon Heffer.

Heffer writes

“talking to the CBI, Mr Cameron made his most economically ignorant observation yet, about making it easier for bad businesses to avoid liquidation. He really doesn’t get it.

“The late Prof Hayek wasn’t being a tease when he said that bankruptcies were good because they drove inefficiencies out of the economy. He meant it, and he was right.

“Mr Cameron takes us back to Heatho-Wilsonian socialism, propping up lame ducks and wasting valuable resources that ought to be put to more productive use.”

Both Nelson and Heffer appear ignorant of the fact that (a) administration has existed in the UK for 20 years, not through Heath or Wilson because; (b) it was  the high priestess worshipping at the altar of Hayek’s economic system their sainted Margaret Thatcher who brought administration in; and (c) the current law virtually does what Cameron seeks.  

With such ignorance from the commentators the commenters can be excused for their inaccuracies.  One commenter on Nelson’s column has suggested that Cameron is spot on, and would address the ills in the current law apparently raised with the Major government but not corrected.

I posted a reply to this some hours ago – but the vagaries of approval mean that my comment has not yet appeared.  However, for posterity (in case it doesn’t make it) I wrote

“The reforms implemented by the Enterprise Act 2002, in removing the power of new floating charge holders (typically big banks who had a security over the entire asset base of the debtor company to secure the indebtedness due) to appoint receivers (who had as a function the repayment of the floating charge holder) removes some of the control of the big banks. True the reforms allow the floating charge holders to appoint administrators – but the appointment (1) replaces the management of a failing company; (2) puts a moratorium on debt enforcement for a year (which can be extended on application); and (3) means the person put in place to manage (the administrator) owes duties to every creditor rather than just the big bank.

“Now, Cameron’s ideas are virtually identical to what the law is at the moment. Could he explain what is wrong with the current law that his proposals would remedy? Or perhaps he doesn’t understand the current law (brought into force during the past 5 years), and that it is broadly similar to his proposals. Perhaps he needs to be asked about this – because his credibility as a policy formulator is dependent on responding to genuine systemic problems, rather than policy making by soundbite, where substance is lacking.”

But in the midst of all of the stuff about Cameron other experts have pronounced on insolvency matters.  One example is Dr Eamonn Butler from the Adam Smith INstitute who posted at the Telegraph and on the Institute’s own website an article criticising the Cameron proposals and pointing out that the real villains in British insolvency law were those representing Her Majesty’s revenue and Customs.

IN the first version of Dr Butler’s text (remnants of which remain in the Telegraph version) he suggested that HMRC was the real problem for British insolvency law.  

“It’s the fact that HM Revenue & Customs are first in the queue to be paid when a business fails.”

Originally, Dr Butler then followed this by saying,

“Suppliers and customers get left with a few pence for each pound they’re owed. …It would be better.. if they (HMRC) were in the same queue as all the other creditors.”

Unfortunately for Dr Butler (and as I pointed out in a comment published on the Telegraph blog last night but mysteriously removed by this morning) this was incorrect.  The preference for crown creditors was removed on 15th September 2003 – by lovely Mr Mandelson who pushed this through within the same Enterprise Act 2002 that amended the law of administration.  Thus, HMRC – aside from one or two peculiar provisions in the Taxes Management Act that confer the benefit of debt enforcement provisions that have been carried out pre-insolvency – are in the queue along with everyone else.

While my comment was removed at the Telegraph those who pointed out this inaccuracy at the Adam Smith Institute have had better luck including the Englishman who kindly kept the erroneous copy of the original version in his own post on the topic.

But, when the “experts” are making basic errors, and the lack of substance in Cameron’s policy statements (because the law is virtually what he wants it to be) is not questioned then one’s faith in the mainstream media to do anything other than gleefully parrot press releases from one party or another is severely undermined.


About loveandgarbage

I watch the telly and read when not doing law stuff and plugging my decade and a half old unwatched Edinburgh fringe show.
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