The Government is consulting on its review of the corporate insolvency framework. Whilst I agree there is merit in the idea of encouraging business rescue I also agree with Philip King, Chief Executive of the Chartered Institute of Credit Management (CICM) that "...it is naïve to think that the system will not be open to further abuse by unscrupulous directors without adequate or appropriate oversight. The challenge will be in ensuring that such oversight is rigorously monitored and the process sufficiently transparent.”
One of my other major concerns is that for creditors to object to the moratorium this must be done after it has been approved, within the first 28 days, and will involve an application to Court thus costing creditors time and money when they are already concerned whether their original debt will be repaid.
The consultation is open until 6 July 2016.
The review contains four proposals intended to improve the likelihood of the rescue of a viable business in distress, include a 90-day moratorium on enforcement and legal action. The proposed moratorium is 90 days, with the option to extend if needed. It will give companies the space to consider their options for rescuing the business, free from enforcement and legal action by creditors. This will include making it easier for companies to maintain contracts essential to the business and the make it less likely that they will be “held hostage” by key suppliers seeking to profit from the company’s troubles. Currently, some creditors can block restructuring proposals, or not take part in them and want to negotiate a separate deal. Under these proposals, the rescue plan would bind secured as well as unsecured creditors and introduce a ‘cram-down’ mechanism.