DTI likely to amend insolvency law for associations this year

The department for trade and industry could soon clear up ambiguities in insolvency law that have threatened to force up loan prices for housing associations.

The legislative changes have been expected for some time, but it was feared the process could be time-consuming. Now it seems likely the amendments won’t go before parliament, and could be brought in by December – although the DTI could not commit to an exact date.

The concerns about insolvency law centred on a court case that suggested industrial and provident societies, including many housing associations, would go into administration rather than receivership if they went bust.

On 9 May 2003 the High Court ruled that pension provider Salvage Association should go into administration although previously receivership was more normal.

The banks were worried that this would make it harder to reclaim money. That’s because lenders tend to be first in line to receive funds from sales of assets during receivership, but not with administration.

Banks had warned that loan prices could rise to reflect the increased risk (HT 19 September 2003, page 15).

It is believed the DTI’s amendment will outline that industrial and provident societies, including housing associations, will go into receivership rather than administration.

The change has been welcomed by both lenders and housing associations.

Bob Wilson, head of finance policy at the National Housing Federation, said: “We are relieved that the DTI listened and is doing something about it.”

Piers Williamson, chief executive of independent, not-for-profit lender the Housing Finance Corporation, added: “It makes it a far more clear-cut scenario for everyone involved.”

Mike Gaskell, partner in social housing at lawyer Cobbetts, agreed it was good news. “Earlier in the year it looked like the uncertainty was causing difficulty for landlords who wanted to borrow money,” he said.

“I can’t imagine the DTI will get the amendments wrong because it has been intensively pummelled in terms of what the issues are.”