Radical restructuring regime proposals to go ahead
The Insolvency Service have published a summary of responses received to the Review of Corporate Insolvency Framework consultation published in May 2016 which proposed a radical change to the UK restructuring framework.
The summary of responses indicates broad support and it is likely that the proposals will now be taken forward, albeit with some modifications.
Respondents to the consultation welcomed the Government’s exploration of reforms that could improve the restructuring tools available to companies. The responses indicate that while there was broad support for the principles behind the proposals, a range of views were expressed on the technical detail.
The Government have indicated that they will continue to establish this detail, considering policy options further and refining the proposals in light of responses received to this consultation and involving continued liaison with stakeholders.
The consultation sought views on four proposed areas for reform of the UK’s corporate insolvency framework:
- Creation of a new moratorium period for financially distressed (but ultimately viable) companies. Creditors would not be able to take action against the company in this period, during which it would be making preparations to restructure;
- Provision to require essential suppliers to continue to supply to a financially distressed company on existing terms and not use termination clauses or demand ‘ransom’ payments;
- Creation of a ‘new restructuring plan’ – a company rescue vehicle that would enable (for the first time in the UK) a ‘cram down’ of classes of dissenting creditors;
- Measures to encourage ‘rescue finance’ (money lent to a company in an insolvency procedure to assist in its survival).
A new moratorium period
Two thirds of respondents who commented on this proposal agreed in principle that the introduction of a pre-insolvency temporary moratorium would facilitate business rescue. Stakeholders provided helpful feedback on the proposed length of the moratorium period, its supervision, and on suggested safeguards.
There was support for the broad objective of helping businesses to continue trading through the restructuring process. Over half of the respondents who commented on whether the proposal would bring about more business rescues thought that it would do so. Respondents provided constructive comments on how the proposal might operate in practice, and on how the associated safeguards for suppliers might be strengthened.
A new restructuring plan
There was support for the principle of the proposal, and agreement that a restructuring plan which could be made binding in the face of opposition by a minority of creditors would be a valuable addition to the insolvency framework. Stakeholders provided a range of valuable perspectives on how the new plan might operate in practice.
In 2009, the Government published a consultation which included proposals relating to super-priority for rescue funding in administrations and CVAs. As a result of responses received at that time, the proposals were not taken forward. Given changes in market conditions, the Government believed that it was appropriate to seek views again from interested parties. Responses to this consultation indicated that a lack of finance rarely prevents the rescue of viable businesses; the existing framework does permit rescue financing, and there is currently a market for rescue finance. Against this background it is perhaps expected that these proposals will once again not be taken forward at this time.
Analysing the Government’s views expressed in the Summary of Responses document, it seems likely that the proposals on the moratorium, essential supplies and a new restructuring regime could be taken forward quickly as part of the Better Business Bill set out in the 2016/17 Parliamentary programme.