Changes to UK insolvency law that will give distressed businesses more time to formulate a rescue plan could be just the beginning of reforms to insolvency law, experts claim.
The Corporate Governance and Insolvency Bill is set to be fast-tracked through parliament in the UK and introduces temporary changes to prevent winding up petitions and statutory demands during the coronavirus crisis, as well as a new permanent company moratorium to give viable distressed companies 20 business days, extendable to 40 or longer by agreement, to pursue a rescue plan.
To qualify, a company must be unable to pay its debts and it is likely that a moratorium would result in a rescue of the business as a going concern.
The exit from the moratorium may be achieved in a number of ways including a rescue, sale, refinance, company voluntary arrangement, scheme of arrangement or restructuring plan.
Business advisory firm Duff & Phelps said this could pave the way for insolvency changes globally to create a level playing field.
“In enabling businesses to continue trading even if they are undergoing a rescue or restructure process, the changes introduced are designed to avoid insolvency, preserve employment along with potential enterprise value and should therefore be welcomed,” Benjamin Wiles, managing director of restructuring advisory for Duff & Phelps, said.
“But the key test will be in the detail and practical implications of the new measures.”
“The challenge now is how fast these changes can be made. With parliament now sitting, this significant support for the UK economy is being fast tracked through with the aim to enact the Bill by June at the earliest.
“This might not be the end of the reforms to the existing legal framework.
“We could potentially see a flattening out of global insolvency framework, moving to a more level, fairer playing field.
“In doing so the international business community, and the small to mid-sized enterprises they support, will be better placed to restart and return to trading.”