New insolvency bill a positive lifeline for struggling businesses, but questions remain

The Corporate Insolvency and Governance Bill began its passage through the Lords this week, after a speedy journey through the Commons. As the largest insolvency regulator in the UK, we’re pleased the government has acted so quickly to introduce this bill to protect jobs and businesses.

It also contains long-lasting reforms; the introduction of the standalone moratorium and restructuring plan could see us edge closer to a US-style regime, and is one of the most debtor-friendly developments we’ve seen in years.

While we’re pleased with the new bill, we do wonder how certain measures will work in practice. The flexible restructuring plan is one of the most significant measures, and appears to be modelled on a scheme of arrangement similar to a US chapter 11 procedure. However, it remains to be seen how it will work effectively in a cross-border situation, given that there appears to be no express provision for it to have extra-territorial effect.

There are also question marks over the new type of moratorium, which allows companies to restructure or seek new investment without being penalised by creditors. There may be doubts as to whether insolvency practitioners are convinced by the moratorium’s ability to deliver on its main purpose of saving jobs and businesses when, for example, the measures giving businesses a payment holiday on most of their debts may not cover financial and bank arrears, which could blunt its overall practical impact.

Meanwhile, the decision to exclude companies with more than £10m of capital markets transactions would restrict support for many of the companies the moratorium is designed to support, so we invite the government to explain its rationale for these exclusions.

We’re also concerned that changes in the Finance Bill currently progressing through the Commons, such as plans to make HMRC a preferential creditor and to make directors liable for a company’s tax debts, could undermine the very purpose of the Corporate Insolvency and Governance Bill. We would recommend that these measures are removed.

Only time and testing will tell us if the new measures will live up to the purpose of the bill. The temporary measures in the legislation, which relate to coronavirus, are couched in vague language and could cause considerable uncertainty if extended in their present form. We’re also unsure whether the suspension of wrongful trading liability will really offer struggling businesses much protection, given that those affected by a company going into insolvency, such as creditors, will likely pursue all avenues against directors.

Licensed insolvency practitioners will have an important role to play over the next few months as the new measures take effect. As responsible professionals committed to helping companies restructure and survive where possible, our members will take every step necessary to provide feedback to ensure the legislation works in the best possible interests of those who need to use it. The bill has been designed to save businesses and jobs – we hope it’s a success.