Written by: Keith Tully
A new set of laws could soon be in place that significantly alter the UK’s corporate insolvency and restructuring landscape.
The Corporate Insolvency and Governance Bill has been put before parliament with its proponents describing the key objective as being to “provide businesses with the flexibility and breathing space they need to continue trading during this difficult time”.
Against a backdrop of the coronavirus crisis and a very sharp fall in economic activity, it is estimated that around half a million UK businesses are currently close to collapse.
Key measures outlined by the proposed new laws include the creation of a moratorium period that would provide ‘breathing space’ and greater scope for companies to consider actions that might see them rescued from insolvency.
Under the proposed legislation, companies which have left their debts unpaid because of coronavirus issues would also be protected from winding up petitions, while directors in those situations would be shielded from legal actions and free to continue trading.
The new rules would also ease the legal stipulations around deadlines for filing accounts and for holding Annual General Meetings.
“This bill represents the biggest change to the UK’s insolvency and restructuring framework for almost twenty years,” noted Colin Haig, president of the insolvency and restructuring trade body R3.
“The measures contained in the bill will support the profession’s efforts to help businesses navigate the enormous economic damage caused by the pandemic - this legislation comes not a minute too soon.”
The breathing space measures outlined within the draft legislation would mean directors can remain in place at their insolvent companies during a 20-day period of moratorium during which they can explore potential rescue options without being threatened directly by creditors.
Companies would remain under the control of directors during those periods of moratorium but the processes involved would need to be officially overseen by licensed insolvency practitioners.
A further 20-day period of moratorium could subsequently be requested by directors of struggling companies who need more time to explore potential rescue options.
Crucially, if the government’s plans become law, periods of moratorium will be accessible to insolvent companies as well as those that are in financial difficulty but still operating on a solvent basis.
“Previously the moratorium would only have been open to solvent businesses, but now the legislation will enable insolvent businesses to obtain breathing space to review their options,” explained Mr Haig from R3 in a statement.
“This greatly increases the number of struggling but potentially viable businesses who could benefit from a vital breathing space, and will help to repair the economic devastation caused by the pandemic.”
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