New Insolvency Laws released – but who will they help?

21 May
New Laws for the Insolvency Industry

New Insolvency Laws released – but who will they help?

Following the UK Government’s announcement about suspending wrongful trading and bringing forward laws to assist companies with restructuring, the new Corporate Insolvency and Governance Bill has been put to Parliament and will soon become law …… but will it help you?

There are five main provisions of the new Bill. 

The first is for those dealing with Large Companies threatening to not supply

  1. A restriction on key suppliers from stopping trade when a company enters into an insolvency process (applies to suppliers who are large companies only at present)

The next two are time limited

  1. A suspension of wrongful trading provisions backdated to 1 March 2020
  2. Prohibition on issuing statutory demands and issuing winding up petitions

These are welcome to assist businesses during the pandemic, but they are only for a restricted period of time (currently until the end of June 2020). 

IMPORTANTLY:  If there were issues prior to 1 March 2020 or there can be shown that the pandemic is not at fault for financial difficulties, then these prohibitions do not apply.

Which leaves these that may help businesses

  1. An opportunity to apply for a 20 day moratorium of action so that a restructure or refinance of a business can take place
  2. A new procedure to assist with a restructuring of the company

These are the big ones.  These are large changes to the insolvency legislation and nobody yet knows how they will work in practice.  The concept is that an insolvency practitioner will “monitor” the business and provide confirmation about the success or otherwise of the restructuring plan, will authorise payments to be made and will have the power to stop the restructuring if they deem it inappropriate at any time.

This seems to effectively pass financial control to an insolvency practitioner.  Directors and accountants will therefore need to work closely with the insolvency practitioner.  Any insolvency practitioner who is asked to monitor the financial control of a company will be putting themselves at risk of financial liability for it going wrong and the potential of being criticised subsequently.

Costs of course may be an issue depending on the nature and complexities of the business involved and this may become a barrier

Our feeling at present is that this new procedure may be available for companies with significant reserves, primarily cash flow issues and at the early stages of financial difficulty but a sound business at the core, worth preserving and saving.  

And so for smaller businesses

The options of CVA and administration still exist to assist with companies seeking to rescue their business and make arrangements with creditors and we believe that these well established procedures will most likely see far more activity than the new procedures in the short term.

We will provide further information once the Bill has been fully considered and a little more detail becomes apparent.

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