After HMRC’s recent consultation on insolvency, the government has committed to give financially-viable businesses in distress more time to consider their options.
The proposed measures will give businesses in distress a 28-day moratorium period on legal action (overseen by an insolvency practitioner) allowing time to consider a restructure or seek new investment to rescue their business, free from creditor action.
A moratorium is a break, not a full stop
Not everything will pause during the moratorium: the company would continue trading during this time, so small suppliers and workers would still be paid. The company’s management would remain in place during discussions, and creditors would not be able to take action against the company in this period, during which it would be making preparations to restructure. Essential suppliers would be required to continue to supply to a financially distressed company on existing terms and not use termination clauses or demand ‘ransom’ payments.
Time for restructuring
Companies will also have access to a new restructuring plan procedure, allowing them to restructure their debts. The moratorium proposal and the restructuring plan proposal are independent of each other and using a moratorium would not be a pre-requisite for seeking creditors’ agreement to a restructuring plan.
This added time will, in many cases, mean the rehabilitation and rescue of companies in the longer term, preserving value and safeguarding jobs.
Vincent Simmons, Director of BV Corporate Recovery & Insolvency Services Ltd, welcomed the government’s announcement,
“In many cases, it is hard for management to have the time to look at recovering or restructuring, so transparent procedures can help them look at the steps they need to take. The updated corporate insolvency proposals also provide efficient procedures to protect the interests of creditors where companies do become insolvent.
I believe that the proposals will provide greater opportunities for corporate rescue and to give more companies the opportunity to prosper.”
A moratorium period is not the only option
It is worth noting that entry into a moratorium does not replace the other statutory options currently available, and does involve notice to all creditors, which may bring with it a higher degree of stigma than consensual discussions.
We would encourage businesses to enter into dialogue with creditors early on in cases of financial distress, however the option of a moratorium gives management time and space to consider all of the options.
You should always seek advice about your specific requirements before you act. Speak to one of our experts on 0161 476 9000 or contact us here for a confidential, no-obligation discussion, and let’s see what your options are.