Weekly Blog by Philip King, CEO of the ICM - 'A case of the tail wagging the dog'

Ed Davey announced last Thursday that the Government is not going to seek to introduce new legislative controls on pre-packs at this time because it is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-businesses.

It's hardly surprising that the announcement has caused a furore and been presented as a victory for the insolvency profession and a massive blow for creditors. Indeed, there was a blog over the weekend that drew attention to my comments and those of Frances Coulson, President of R3, as epitomising the two positions. To be frank, this suggestion misses the point. My anger and frustration is not at the decision not to introduce legislative changes, even though I think they had some merit.

I am not fundamentally opposed to pre-packs and I believe they can be of enormous benefit when used correctly and appropriately. What I am fundamentally opposed to, however, is the abuse of pre-packs and the phoenix situation when the same directors continue what is, to all intents, the same business, but without previously incurred debts, leaving creditors high and dry. Two of the key benefits of the proposed changes were the notice period that would allow creditors to communicate with insolvency practitioners and bring what might be important and relevant information to their attention (a notice period that the Court could agree to be waived in certain circumstances), and the requirement that the IP should make a declaration in advance that he believed the pre-pack to be the appropriate solution in the circumstances; psychologically, so much more powerful than making that statement after the event as part of the SIP16 process.

But perhaps what really frustrates me is the obvious waste of time, resources and effort, and the justification for the decision that has nothing to do with what is right or wrong. A consultation launched in March 2010, and the subject of numerous meetings with stakeholders, papers, and discussion, has now been kicked into the long grass (as I feared it would) with an assertion by Ed Davey that he has asked his officials "to undertake an urgent review in conjunction with stakeholders of how the existing controls on pre-packs have been working.......". Surely that 'urgent review' could and should have been carried out as part of the consultation process? I am all for cutting regulation and red tape, and I am encouraged by the Government's ambitions and success in reducing bureaucracy through the work of the Better Regulation Executive under Lord Curry, but when the regulations argument justifies policy decisions, it feels too much to me like the tail wagging the dog.

I certainly do agree with those who, in the debate since last week, have suggested that suppliers might - and should - pay more attention to credit risk management in order not to be in the frame (or at least to control their exposure) when a pre-pack, or any other insolvency, happens.

Weekly Blog by Philip King, CEO of the ICM - 'The majority are micro'

Ed Davey issued a discussion paper last week - "simpler reporting for the smallest businesses" and I make no apology for using my blog this week to readdress some of the issues raised in the press release we issued immediately after the discussion paper was received.

The paper considers whether micro businesses should be allowed to file a simplified trading statement, statement of position, and annual return in place of the current profit and loss account, balance sheet, and annual return. So far so good; making reporting easier will surely reduce the burden on smaller businesses.

But wait. What has the EU defined as a micro business? Micro businesses are those who do not exceed two of the following criteria; a net turnover of Euro 500,000 (£440,000) a balance sheet of Euro 250,000 (£220,000), and an average of ten employees during the financial year. 60% of companies registered at Companies House meet these criteria so it isn't a 'small minority' by any measure.

The paper raises a number of interesting questions and I am looking forward to receiving feedback from ICM members when we launch a survey seeking their views. The move to a trading statement prepared on a cash accounting basis which would remove the need to account for, among other things, stock, changes in working capital, and changes in the value of fixed assets raises a number of questions in my mind (although I'm always prepared to admit that I might be out of date).

My biggest gripe, however, is with the definition of users of accounts which, among the six categories, doesn't even mention creditors except under the quaint term of "other trading counter parties". It is this that suggests to me a complete lack of understanding of the role of credit. A business turning over £440,000 is typically going to make sizeable purchases and, for the majority, these will be on credit terms. Credit professionals provide by far the biggest proportion of cash flow funding to business and, to make good decisions, they need good information.

The discussion paper and survey will be with you shortly; please look out for it and give us your feedback. We need to make sure our ability to support economic recovery is not undermined.