Thatcher’s insolvency legislation is backbone to current business enterprise

With the recent death of Margaret Thatcher, I thought it opportune to have a look back at the huge effect she had on the way we deal with insolvencies in the UK.

Towards the end of 70s and the beginning of the 80s, Britain was in the grip of a recession, suffering a lack of confidence in its own business prowess, and facing a need to move away from its core raw material industries.

Much wrong was done in the need to change Britain’s direction, and many communities were ripped apart in the way it was approached, especially across the North. However, when Mrs Thatcher was appointed prime minister in 1979, she also set the UK onto a path of business reform that completely changed the way businesses operate.

Having loosened the grip of the unions, she also brought in new measures in line with her ethos that every individual should have the ability to own their own homes, and create their own wealth.

With this in mind, the 1986 Insolvency Act and Rules provided a regulatory framework, which encouraged would be business owners to run business, knowing that in trying and failing, they could now use legislation to help survive downturns in trade, and would no longer be as penalised and stigmatised as heavily as they had before.

The Insolvency Act 1986, made procedures for businesses to reach agreements with their creditors for repayment over time (IVAs and CVAs) accessible and formalised. They were now legally binding and encouraged managed risk in business. The Act also introduced the Administration process, with the law’s emphasis now firmly placed on the rescue of the business. This was a monumental move away from the inaccessible and archaic pre-1986 legislation available at the time. They also brought in the need for insolvency practitioners to be qualified, licensed and heavily regulated. It took a few years, but the standards of insolvency have improved beyond recognition directly because of this.

Although at the time many of these changes in insolvency statute probably escaped the notice of most people, they have had an immense contribution in powering the economy. Business owners gradually became more entrepreneurial, to the point where today, such terms like Pre-pack, Administration, and Voluntary Arrangements have become normal business parlance. There are certainly downsides to our system, but it is a significant improvement on where we were. No longer does every blip in business cashflow result in liquidation; nor unpaid bill mean bankruptcy.

In the early 2000s, the insolvency reforms were further changed in the Enterprise Act 2002, but it is testament to the strength of the Thatcher governments 1986 legislation that all Enterprise Act improvements were only extensions and modernization of the of their Act.

Today with 4.8 million businesses in the UK, our business owner to employed person ratio is the envy of much of the world. That makes us more confident, contented and knowledgeable than ever before, and although the European economy is in doldrums, talented, self-employed, enterprising Britain is surely best placed to recover fastest.

If you have any Insolvency or Liquidation related enquiries, please email me at ewall@robsonscott.co.uk.