More insolvency reform - surely not, haven’t we had enough of that recently?
As if we didn't have enough to cope with at the moment post Brexit, the Insolvency Service announced on 25th May the commencement of a consultation document entitled “A review of the Corporate Insolvency Framework”. Those of us in the insolvency profession often feel that we are inundated with change at the moment on many areas, notably director disqualification, pre pack administrations and fee structures. However, this review, if it proceeds into law, could change the whole dynamic of insolvency law. Through this document, the government is consulting on four proposals designed to improve the existing corporate insolvency regime. The intention is to enable more corporate rescues of viable businesses and ensure the insolvency regime delivers the best outcomes and thus for the United Kingdom to remain at the pinnacle of insolvency best practice It is possibly driven by a recent World Bank survey which placed the UK behind its European and international counterparts in the World Bank league tables (yes they exist just like football tables).This status is important to our politicians as they seek to ensure that the UK remains a great place to do business (and that may be more important than ever at this time). Ironically, this consultation came at a time when other EU countries were amending their insolvency legislation and there is an ever increasing call for closer harmonisation of insolvency laws within the EU. Thus, facing pressure to amend its insolvency procedures, the UK has, once again, turned to its old friend (?) the United States of America for inspiration. Post Brexit this may have been a wise choice! The proposals are:
- the introduction of an automatic and stand alone moratorium on legal action.
- the continuance of ‘essential contracts’.
- the creation of a flexible restructuring plan including cram down provisions.
- rescue finance being made more readily available.
- the moratorium would commence when the company files the relevant papers at court (there would not be a court hearing to sanction the moratorium).
- when the company enters the moratorium, the arrears owed to creditors would be frozen, but the business would be obliged to meet ongoing trading costs and debt obligations during the moratorium.
- the company must be able to show that it is likely to have sufficient funds to carry on its business during the moratorium, meeting current obligations as they fall due as well as any new obligations that are incurred . This is to ensure that no existing creditors are worse off.
- creditors would have the right to apply to court during the first 28 days of the moratorium only.
- directors will be protected from liability for trading a company through a moratorium period provided the qualifying conditions continue to be met.
- the three month period can be extended with the consent of all secured creditors and over 50% of unsecured creditors by value.
- the procedure is overseen by a “Supervisor”, who will probably be an Insolvency Practitioner, but could also be a solicitor or accountant.