UK insolvency reforms proposed
The UK is considering major reforms including a 3 month protection period for directors, and the company, while restructuring efforts are pursued; and the ability to bind both secured and unsecured creditors to a reorganisation plan.
A consultation paper - A Review of the Corporate Insolvency Framework, 25 May 2016 - has been released by the UK government, calling for submissions by 6 July 2016.
The relevant law in the UK is the Insolvency Act 1986 It was substantially amended in by the Enterprise Act 2002, which, among other reforms, introduced a one year period of bankruptcy. England has a single insolvency regulator, the Insolvency Service, although professional bodies have a significant professional regulation role. The UK, and Europe, has a major focus on restoring the enterprise of failing companies, which is the subject of considerable research and analysis in that part of the world.
The consultation paper seeks views on whether the UK’s regime needs updating in light of the international principles developed by the World Bank and UNCITRAL, of recent large corporate failures and of an increasing European focus on restructuring. The latter follows the March 2014 recommendation of the European Commission to adopt a new more constructive approach to business failure and insolvency for the EU.
The UK consultation is examining four broad areas for reform:
- a 3 month moratorium (which may be extended) during which time creditors can require ongoing information from the insolvency practitioner, potentially to be extended to all insolvency procedures. Directors may remain in control of the company’s affairs during the moratorium, with no exposure, subject to safeguards, for personal liability, subject to a set of eligibility tests and qualifying conditions. An authorised supervisor would be be involved in the application process and would monitor the company’s compliance with the qualifying conditions throughout the moratorium.
- a broadening the definition of 'essential supplies', which are protected from termination under ipso facto terms, with appropriate safeguards. Essential supplies were recently extended to include IT services;
- significantly, developing a new type of restructuring plan to increase the rescue options available, including allowing the company to enter an arrangement to bind all creditors, including secured creditors, and to ‘cram-down’ those dissenting; and
- increasing the availability of debtor/rescue finance.
The 'supervisor' under option 1 would be a professional who meets certain criteria and levels of experience, including being an insolvency practitioner, an accountant or a lawyer. The supervisor would have to make an initial assessment that the company is eligible for the moratorium.
ARITA is monitoring the progress of this consultation.