Government to review UK insolvency rules

Following a consultation period from late May until early July, the Government is now set to review the current corporate insolvency framework in the UK.

Included in the process that is being overseen by the Department for Business Innovation and Skills and The Insolvency Service, will be discussions over what sort of respite to give to companies facing difficulties.

Several proposals are to be considered, including one to create a moratorium period for businesses to think about how best to rescue themselves without fear of creditors taking legal action.

Another will look to find measures that can help a business to continue trading during a restructuring period, potentially aiding them in the long term.

Exploring new options for rescue financing and having greater flexibility when developing restructuring plans have also been proposed.

Insolvency trade body R3 welcomed the proposal for a moratorium when it was announced, although R3 president Andrew Tate has stressed that it must be “practical”.

“It should be short, to make it easier to fund and to limit the burden on creditors, and there should be a licensed insolvency practitioner in place to look after creditors’ interests,” he explained.

R3 had proposed a 21-day moratorium, with the possibility of extending to 42 days provided the courts give approval – instead, the Government consultation is looking at a period of three months.

Tate added that a 21-day period should be enough time for a struggling company to put a rescue plan in place and bring creditors on board with it.

He suggests that a longer moratorium might cause added risk to creditors as a company could ‘drift’ instead of finding solutions to their problems.

Business Secretary Sajid Javid said that the consultation aims to give business owners more confidence in their ability to restructure should they find themselves in difficulty.

“Nobody ever wants to see a company in trouble,” he wrote in the foreword to the document. “But sometimes, insolvency is unavoidable.

“And should the worst happen to a business, we have a duty to give it the best possible chance to restructure its debts and return to profitability while protecting its employees and creditors.

By Phil Smith

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