The Insolvency Act was good, but it should not be abused

The Insolvency Act, 2015 was hailed as a revolutionary piece of legislation that would transform the investment environment by offering a lifeline to struggling businesses.

Under the law, a company that would have been liquidated as an easy way out for creditors is given a second chance.

Instead of liquidation, a court-appointed administrator manages the company profitably with the aim of helping creditors get back their money. After all, what would be the benefit of liquidating a broke company that does not have valuable assets?

Unfortunately, the same law can be used by a struggling company to shield itself against creditors and tough audit queries.

As a result, many suppliers have seen their fortunes disappear, even as some companies buy time with creditors’ money.

There is some reprieve, though. Following an amendment to the law, a supplier now only needs to prove that they are in financial distress to force liquidation of a company put under administration.

Courts can now look at, among other conditions, the impact of the approval on the applicant particularly whether the applicant is likely to suffer significant loss.

While we welcome this amendment, we also hope that the good intentions of the Insolvency Act will be maintained; that companies will not be liquidated summarily, but preserved, if only for the sake of the economy and jobs.