yed little or no part in the business. The liquidator of Mr Salomon's company sued him to personally pay the outstanding debts of his company, arguing that he should lose the protection of limited liability given that the other shareholders were not genuine investors. Salomon's creditors were particularly aggrieved because Salomon himself had taken a floating charge, over all the company's present and future assets, and so his claims for debt against the company had ranked in priority to theirs. The House of Lords held that, even though the company was a one man venture in substance, anybody who duly registered would have the protection of the Companies Acts in the event of insolvency. Salomon's case effectively completed the process 19th century reforms because any person, even the smallest business, could have protection from destitution following business insolvency.
The financial collapse of 2007–2008 led to a bank run on Northern Rock, the first since Overend, Gurney & Co in 1866. Northern Rock, Lloyds TSB and RBS were nationalised for £650bn. After this, the Banking Act 2009 created a specific insolvency regime for banks, but with reduced lending, and economic activity a large numbers of businesses failed.
Over the 20th century, reform efforts focused on three main issues. The first concerned setting a fair system of priority among claims of different creditors. This primarily centred upon the ability of powerful contractual creditors, particularly banks, to agree to take a security interest over a company's property, leaving unsecured creditors without any remaining assets to satisfy their claims. Immediately after Salomon's case and the controversy created over the use of floating charges, the Preferential Payments in Bankruptcy Amendment Act 1897 mandated that preferential creditors (employees, liquidator expenses and taxes at the time) also had priority over the holder of a floating charge (now IA 1986 section 175). In the Enterprise Act 2002 a further major change was to create a ring-fenced fund for all unsecured creditors out of around 20 per cent of the assets subject to a floating charge.[11] At the same time, the priority for taxpayers' claims was abolished. Since then, debate for further reform has shifted to whether the floating charge should be abolished altogether and whether a ring-fenced fund should be taken from fixed security interests.[12] The second major area for reform was to facilitate the rescue of businesses that could still be viable. Following the Cork Report in 1982,[13] the Insolvency Act 1986 created the administration procedure, requiring (on paper) that the managers of insolvent businesses would attempt rescue the company, and would act in all creditors' interests. After the Enterprise Act 2002 this almost wholly replaced the receivership rules by which secured creditors, with a floating charge over all assets, could run an insolvent company without regard to the claims of unsecured creditors. The third area of reform concerned accountability for people who worsened or benefited from insolvencies. As recommended by the Cork Report, the Company Directors' Disqualification Act 1986 meant directors who breached company law duties, or committed fraud could be prevented from working as directors for up to 15 years. The Insolvency Act 1986 section 214 created liability for wrongful trading. If directors failed to start the insolvency procedures when they ought to have known insolvency was inevitable, they would have to pay for the additional debts run up through prolonged trading. Furthermore, the provisions on fraudulent conveyances were extended, so that any transaction at an undervalue or other preference (without any bad intent) could be avoided, and unwound by an insolvent company.
yed little or no part in the business. The liquidator of Mr Salomon's company sued him to personally pay the outstanding debts of his company, arguing that he should lose the protection of limited liability given that the other shareholders were not genuine investors. Salomon's creditors were particularly aggrieved because Salomon himself had taken a floating charge, over all the company's present and future assets, and so his claims for debt against the company had ranked in priority to theirs. The House of Lords held that, even though the company was a one man venture in substance, anybody who duly registered would have the protection of the Companies Acts in the event of insolvency. Salomon's case effectively completed the process 19th century reforms because any person, even the smallest business, could have protection from destitution following business insolvency.
The financial collapse of 2007–2008 led to a bank run on Northern Rock, the first since Overend, Gurney & Co in 1866. Northern Rock, Lloyds TSB and RBS were nationalised for £650bn. After this, the Banking Act 2009 created a specific insolvency regime for banks, but with reduced lending, and economic activity a large numbers of businesses failed.
Over the 20th century, reform efforts focused on three main issues. The first concerned setting a fair system of priority among claims of different creditors. This primarily centred upon the ability of powerful contractual creditors, particularly banks, to agree to take a security interest over a company's property, leaving unsecured creditors without any remaining assets to satisfy their claims. Immediately after Salomon's case and the controversy created over the use of floating charges, the Preferential Payments in Bankruptcy Amendment Act 1897 mandated that preferential creditors (employees, liquidator expenses and taxes at the time) also had priority over the holder of a floating charge (now IA 1986 section 175). In the Enterprise Act 2002 a further major change was to create a ring-fenced fund for all unsecured creditors out of around 20 per cent of the assets subject to a floating charge.[11] At the same time, the priority for taxpayers' claims was abolished. Since then, debate for further reform has shifted to whether the floating charge should be abolished altogether and whether a ring-fenced fund should be taken from fixed security interests.[12] The second major area for reform was to facilitate the rescue of businesses that could still be viable. Following the Cork Report in 1982,[13] the Insolvency Act 1986 created the administration procedure, requiring (on paper) that the managers of insolvent businesses would attempt rescue the company, and would act in all creditors' interests. After the Enterprise Act 2002 this almost wholly replaced the receivership rules by which secured creditors, with a floating charge over all assets, could run an insolvent company without regard to the claims of unsecured creditors. The third area of reform concerned accountability for people who worsened or benefited from insolvencies. As recommended by the Cork Report, the Company Directors' Disqualification Act 1986 meant directors who breached company law duties, or committed fraud could be prevented from working as directors for up to 15 years. The Insolvency Act 1986 section 214 created liability for wrongful trading. If directors failed to start the insolvency procedures when they ought to have known insolvency was inevitable, they would have to pay for the additional debts run up through prolonged trading. Furthermore, the provisions on fraudulent conveyances were extended, so that any transaction at an undervalue or other preference (without any bad intent) could be avoided, and unwound by an insolvent company.
