Towards the end of 1970s and the beginning of the 1980s, Britain was in a recession, suffering a crisis of confidence in its own business prowess, and facing the need to move away from its core raw material industries to a more service based economy as demand for the former dwindled and the latter rose.
Arguments still continue about the rights and wrongs of the change of Britain’s economic direction especially the way these were implemented, especially in the North.
However when Mrs Thatcher became Prime Minister in 1979, everyone can agree that she set the UK onto a path of business reform that completely changed the way that businesses operated.
The power of the unions was curtailed and new policies were created in line with her own ethos on home ownership and wealth generation.
The 1986 Insolvency Act and Rules provided a new regulatory framework with this in mind that would encourage business owners to run their companies more entrepreneurially. If they tried and failed, the legislation could now be used to help survive downturns in trade and they’d no longer be penalised or stigmatised as they had been before.
The Insolvency Act 1986 made it easier for businesses to reach agreements with creditors for repayment over time (IVAs and CVAs) both accessible and formalised. They’d now be legally binding and would encourage 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 armchair pre-1986 legislation that was being used at the time.
It also transformed the role of insolvency practitioners. They would now be qualified, licensed and heavily regulated. It took a few years to achieve but the standards of insolvency improved beyond recognition due to these reforms.
Many of these changes would have escaped the notice of most people as big changes were occurring in several other areas of society but they had an immense contribution in powering the economy.
Business owners gradually became more entrepreneurial in outlook and approach culminating in today’s world where terms like Pre-pack, Administration and Voluntary Arrangements are well understood and have become common business parlance and practice.
The system isn’t perfect and downsides remain but it is an almost unrecognizable improvement from the pre-1986 landscape. A small blip in cash flow for a business doesn’t result in liquidation nor do any unpaid bills mean bankruptcy.
In the early 2000s, the insolvency reforms were further changed in the Enterprise Act 2002, but it’s a testament to the strength of the 1986 legislation that all improvements were only extensions and modernisations of the original legislation.
There are over 4.8 million businesses in the UK today and the ratio of business owners to employed workers is at an enviable high. This has made the UK a more confident, contented and knowledgeable place to do and create a business and while the European economy remains in the doldrums, a talented, enterprising and increasingly self-employed Britain is best placed to recover faster and stronger.