The UK government has published details of new tools to improve rescue opportunities for financially-distressed companies, which could be particularly useful for the catering equipment industry in light of recent large-scale insolvencies.
The new rescue measures aim to strengthen the insolvency regime and follow a consultation in 2016 and a further consultation on strengthening corporate governance launched in March 2018.
The measures have been announced alongside new reforms to tackle reckless directors and improve corporate governance to protect creditors, employees and other stakeholders in companies approaching insolvency which were the subject of consultation earlier this year.
The insolvency proposals have similarities to aspects of the US’s Chapter 11 Bankruptcy Code and other international regimes and balance support for a company in distress with the interests of its creditors. They include a period of ‘breathing space’ – a moratorium – allowing viable companies more time to restructure or seek new investment to rescue their business free from creditor action.
A new restructuring plan procedure will provide an alternative option for financially-distressed companies to restructure their debts.
Following concerns about some recent high-profile corporate failures, new measures are also being introduced to help ensure that creditors, employees and other stakeholders are treated fairly by the directors of ailing companies. These include new powers for the Insolvency Service to investigate directors of dissolved companies, enhancements to existing antecedent recovery powers and the ability to disqualify directors of holding companies who unreasonably sell insolvent subsidiaries.
Insolvency and restructuring trade body R3 responded to the announcement, with president Stuart Frith commenting: “R3 welcomes the government’s long-awaited announcement that it is moving forward with its corporate insolvency framework reform proposals, which will be the most significant update to the corporate insolvency landscape since the 2002 Enterprise Act.
“As the date of the UK’s exit from the EU approaches, ensuring that the UK’s world class insolvency and restructuring framework for dealing with distressed businesses is flexible, responsive and fit for purpose will be an important component of UK plc’s success. Reform of the corporate insolvency framework is especially urgent as other countries are moving forward with reforms of their own, aimed at taking a greater slice of the restructuring and insolvency work which is currently carried out in the UK.”
He added: “R3 has campaigned for a short moratorium (with the ability to extend), to facilitate business rescue under the supervision of a duly qualified and regulated insolvency practitioner, for some time. This rescue tool will give businesses in distress a ‘breathing space’ from creditors, to put in place a plan to deal with debts and try to avoid insolvency.
“The moratorium must strike a balance between the needs of the distressed business and its creditors to ensure that it provides confidence to creditors to continue to supply and extend credit. The government’s new restructuring tool should also go some way in helping to rescue viable businesses and save jobs.”