The government’s plans for reforming the business insolvency regime and helping struggling firms navigate their way through the fall-out of the covid-19 pandemic have been welcomed by the North East chair of insolvency and restructuring trade body R3.
Alexandra Withers was speaking after the publication of the new Corporate Insolvency and Governance Bill, which is expected to pass through the House of Commons by early June and to become law in the next few months.
The Bill proposes an initial 20-day moratorium to give struggling firms a formal breathing space to pursue a rescue plan, during which time no legal action can be taken against them without leave of the court.
It includes provisions to void statutory demands, which are a formal way of creditors asking for payment of a debt from a company, and to restrict winding up petitions against businesses in the period up to 30 June.
The Bill also relaxes the threat of personal liability for company directors who are doing their best to keep the business going, but who might be trading while insolvent during, and as a result of, the lockdown.
If a company is in either a moratorium period, or an insolvency or restructuring procedure, suppliers will not be able to use the terms of their contracts to raise prices or stop supplies, although the customer will still need to pay for any new supplies made. Smaller suppliers will be exempt from this and there are safeguards for others at risk of hardship.
Alexandra Withers, who is also an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors, says: “This Bill represents the biggest change to the UK’s insolvency and restructuring framework for almost twenty years, and having called for corporate insolvency reforms since 2016, we welcome its introduction to Parliament.
“The measures contained in the Bill will support the insolvency profession’s efforts to help businesses navigate the enormous economic damage caused by the pandemic – this legislation comes not a minute too soon.
“The new tools will add to the options available to insolvency and restructuring professionals trying to rescue businesses, and will enhance the UK’s globally-recognised insolvency and restructuring framework.
“We are also pleased R3’s feedback on the draft proposals has been taken on board by the Government. Previously, for example, the moratorium would only have been open to solvent businesses, but now the legislation will enable insolvent businesses to obtain a breathing space to review their options, free from the risk that a creditor may push the company into an insolvency procedure prematurely.
“This greatly increases the number of struggling but potentially viable businesses who could benefit from a vital breathing space and will help to repair the economic devastation caused by the pandemic.
“We appreciate that in producing this Bill, the Government has condensed a process that usually takes more than year into just a few weeks. The insolvency and restructuring profession will therefore be keen to examine the detail of the legislation, but overall, will welcome it as a positive step forward.”