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Restructuring & Insolvency analysis: Rachael Markham and Cathryn Williams of Squire Patton Boggs, consider the Government’s response to the insolvency and corporate governance consultation and what this means for the insolvency world.
On 26 August, the Government announced that it will be making changes to UK insolvency legislation. The changes are intended to support distressed companies and address issues highlighted by major company failures and include:
the ability for all companies to apply for a moratorium
a new insolvency process—the ‘restructuring plan,’ enabling companies to cram down creditors
a prohibition on suppliers enforcing termination provisions in contracts and licences upon insolvency
an increase in the prescribed part
a change to the requirement to prove insolvency on a preference claim
However, legislative changes are unlikely before 2019 given that implementation depends on parliamentary time, which is currently engaged with Brexit.
More time for business rescue as the Government introduces a moratorium for all companies
Under the reforms, subject to a company fulfilling (a) eligibility criteria and (b) qualifying conditions all companies will be able to obtain a moratorium, allowing companies time to formulate restructuring proposals without creditor pressure.
The process for obtaining a moratorium will be akin to a directors’ out of court appointment of administrators and will require the company to file papers at court accompanied by consent to act from an insolvency practitioner (‘IP’) confirming that the eligibility and qualifying criteria has been met. Creditor consent is not required.
Once the papers are filed, the moratorium will come into effect.
The IP—‘the monitor’—will then notify all creditors and register the moratorium at Companies House and has to ensure that the company continues to meet the qualifying conditions during the moratorium. The company remains in the directors’ control during the moratorium which initially lasts for 28 days unless extended (with monitor approval) for up to another 28 days. Beyond 56 days, 50% of secured and 50% of unsecured creditors must consent to any further extension, although the company can apply to
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