Significant changes in insolvency legislation planned

Following a series of consultations over the last two years the Government has recently confirmed its intention to make significant legislative changes to "reinvigorate" the UK's rescue culture.  This will be the most significant update to the corporate insolvency landscape since 2002.

The Government's aim is for the UK to remain near the top of World Bank rankings for insolvency and restructuring and post Brexit specifically number one in Europe in response to concerns raised by high profile corporate failures of Carillion and BHS.  The intention is the measures will be introduced as soon as Parliamentary time permits and to pip the EU to the post with its new insolvency directive so will need to do so before May 2019.

So what is headed our way?  The devil will be in the detail but we think the changes can be split between those that will mainly affect large businesses (that meet two out of the three thresholds of turnover >£36 million, gross assets >£18 million and >250 employees) and those that have more general application.

The measures that will or are more likely to effect larger business include:

• Directors of parent companies having to give consideration to the interests of stakeholders in 'large' subsidiaries (think BHS).
• A new restructuring moratorium and restructuring plan whilst open to all companies will require the Company to still be solvent and necessitate multiple Court failings.  It is difficult to say but you can imagine that these procedures may be used to renegotiate secured loans and bond holder debt - akin to the current UK Scheme of Arrangement.
• Pension reforms to protect final salary pension schemes including a civil penalty of up to £1 million for serious breaches of pension rules (of which there are many) and new criminal offences.  Of course such pension schemes are not exclusively the domain of large companies but most employers are.  This adds more burdens on directors in an already fiendishly complicated area.

There are also changes afoot for everyday companies include:

• An increase in the maximum prescribed part pot for unsecured creditors from £60,000 to £800,000.
• Enhanced necessary powers for insolvency practitioners.
• Prohibition of enforcement by a supplier of insolvency termination clauses.
• A comprehensive review of the UK dividend regime (in our view long overdue as this is the biggest single area we see directors getting wrong time and time again).
• New powers of the Insolvency Service to take action against directors of dissolved companies without having to restore the company to the register first.

What does all this mean?  Well there will be more options available and more pitfalls to be wary of for directors whose companies face insolvency.  Meaning it will be even more important to take specialist advice early at the first sign of financial trouble.

For further information about our services for underperforming businesses generally please call 0800 331 7417 and speak to one of our experts.