MAJOR REFORMS AIM TO SHAKE UP THE UK INSOLVENCY REGIME

New measures are being introduced to the UK’s insolvency regime to shake up the way in which companies are run whilst creating alternative procedures to support business rescue. The object of the new measures is to balance the need to support a company in distress with the interests of its creditors and aims to give struggling companies every opportunity to be restructured where they can continue to create value. 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.

The new proposals aim to give financially-viable companies more time to rescue their business. This will include a range of transparent rescue procedures to allow companies to restructure or seek new investment to give companies every chance of not failing.  These reforms will include:

  1. The introduction of a new moratorium to help business rescue (initially for 28 days but extendable). This will give those financially distressed companies which are ultimately viable, a period of time when creditors cannot take action against the company, allowing it to make preparations to restructure or seek new investment. This moratorium will be accessible to companies of any size. The directors of the company will remain in control throughout the period of statutory moratorium under the supervision of a monitor who is to be, at this stage, an insolvency practitioner.

  1. Prohibition of enforcement by a supplier of termination clauses in contracts for supply of goods and services on the grounds that a party has entered a formal insolvency procedure, the new moratorium or the new restructuring plan. The intention is that this will allow businesses to continue to trade through the rescue or restructuring process, providing a degree of stability so that rescue will be more likely.

  1. Creation of a new restructuring vehicle that would include the ability to bind dissenting classes of creditors who vote against it.

It is also introducing new powers to disqualify or fine reckless directors who have dissolved companies to avoid paying workers. The government is further raising standards by ensuring bosses explain to shareholders how the company can afford to pay dividends alongside financial commitments such as capital investments, workers’ rewards and pension schemes. There are also proposals to improve boardroom effectiveness and strengthen directors’ training and guidance.  The overall effect of the reforms is to strengthen transparency in the way in which companies are run together with ensuring greater accountability of directors.

Matthew Howat, Partner at Howat Avraam Solicitors comments: 

These reforms, if introduced, are likely to have a huge impact on business, both in terms of how directors operate but also with regard to how businesses deal with their debtors.   The reforms pave the way for a significant increase in financial and disqualification claims against directors, who need to ensure their behaviour can withstand additional scrutiny.  Businesses will also have to keep a closer eye on their debtor levels, as they could easily find that their debtors are protected from recovery action and enforcement whilst a “moratorium” is imposed to protect the debtor company until it gets back on its feet.  Howat Avraam Solicitors can advise business and their directors on their duties and obligations and provide specific advice in circumstances of corporate insolvency and rescue.

CONTACT US

To discuss any company law or commercial matter on a no obligation basis, please contact Matthew Howat, Partner, on 020 3735 6700 or email Matthew at Matthew.Howat@hasolicitors.co.uk. Alternatively, visit our website at www.howatavraamsolicitors.co.uk.

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