BIS launches consultation to shake-up of the UK’s corporate insolvency regime

The Department for Business, Innovation and Skills (BIS) has published a new consultation paper reviewing the corporate insolvency framework within the UK. According to the department, the review is focused on helping to facilitate company rescue rather than liquidation where this is possible and appropriate.

According to Business Secretary Sajid Javid, there has been an increasing international focus on business rescue, which in turn is altering the perception of insolvency best practice in Europe and beyond. The UK regime, he says, needs to reflect this focus.

One of the main proposals is a three-month moratorium on legal action against distressed companies, which could provide them with breathing space while they consider rescue options.

There could also be the possibility of an extension to the moratorium. During any moratorium period, creditors would have the right to request information of the insolvency practitioner.

Business recovery trade body R3 broadly welcomed the principle of a moratorium but warned that too long a period could risk harm to creditors. R3’s own recommendation is for a 21-day moratorium that could be extended to 42 days with the approval of the courts and which would be overseen by an insolvency practitioner.

The BIS proposals also recommend widening the definition of ‘essential supplies’, which could help distressed businesses continue to trade and prevent key suppliers from seeking to profit from the company’s distress.

A third proposal is to introduce a more flexible restructuring plan. Under a Company Voluntary Arrangement or CVA, secured creditors can opt to join in a restructuring plan voluntarily. In practice many choose not to but the new proposals would present the possibility of binding both secured and unsecured creditors.

A restructuring plan could be imposed on junior classes of creditors if more than three quarters of a class by value and more than half of a class by number vote in favour of the plan.

The consultation also suggests exploring options of law reform that would help develop the market and increase the availability of refinancing and rescue finance for distressed firms.

By Phil Smith

If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1144.

View all Business Insights