Review of the corporate insolvency framework

Review of the corporate insolvency framework

What are the changes to the UK corporate insolvency framework proposed in the recent consultation launched by the Insolvency Service? What might the consequences of the new cram down procedure and the rescue finance proposal be?

Original news

Proposals to bolster the insolvency regime

The government is consulting on four proposals designed to improve the existing corporate insolvency regime. The intention is to enable more corporate rescues of viable businesses and ensure the insolvency regime delivers the best outcomes. One of the proposals is to create a new moratorium which will provide companies with an opportunity to consider the best approach for rescuing the business while free from enforcement and legal action by creditors.

What has been proposed?

The government is consulting on four proposals which would significantly change the options available to a company in financial distress. The proposals are:

  • the introduction of an automatic and standalone moratorium
  • continuance of 'essential contracts'
  • a flexible restructuring plan including cram down
  • rescue finance

Automatic and standalone moratorium

The consultation proposes a new automatic and standalone moratorium that would be available to all businesses (except for insurance companies, banks and other companies involved in specific financial market transactions) lasting for up to three months, with the possibility of an extension. The rationale behind the standalone moratorium is that it would provide debtors with time to negotiate a restructuring without the threat of individual creditors taking precipitous individual action. The key features are:

  • it would precede and act as single gateway to different forms of restructuring
  • the moratorium would commence when the company files the relevant papers at court (there would not be a court hearing to sanction the moratorium)
  • the moratorium would follow the existing small company moratorium provisions in schedule A1 of the Insolvency Act 1986 (company voluntary arrangements (CVAs))
  • when the company enters the moratorium, the arrears owed

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