Is a new business rescue moratorium needed?
In April R3 (The Association of Business Recovery Professionals) published new proposals that would see companies being able to file for at least three weeks of protection from its creditors and possibly up to six depending on the circumstances. This would mean that the company’s creditors would not be able to collect or recover any debts during that time. Great for the companies you may think but where does this leave the creditors?
Another difference these proposals would make is that the directors, after the initial moratorium period, would regain full control of the company. This is really important because after that, they will be able to determine whether they are able to continue or whether they need to follow more formal insolvency procedures, if things haven’t improved.
Do we really need these changes?
Well the new proposals are an attempt to help companies, its managers and directors to get their act together by forming a plan, restructuring (if necessary) and taking a few breaths to figure out what is going on. During this period they will need to work out how they can fix the problems or conversely whether the issues can’t actually be fixed at all. Ultimately, it should also help to protect jobs and improve the return to creditors. So rather than leave creditors high and dry, the new proposals would actually help them in the long run.
This is what Phillip Sykes, R3 president, says about the new proposals: “The UK insolvency regime is already highly regarded, so this is a case of improving rather than replacing what we have already. A moratorium would introduce some positive aspects of the US insolvency regime without also introducing the high costs associated with the US approach.”
What’s wrong with the current system?
Currently, there are insolvency moratoria available, but typically only for smaller companies and for a maximum of 28-days. For larger companies, this doesn’t apply and quite often they’re the ones who could benefit the most from such an arrangement. As Philip Sykes referred to above, there are systems in place in the US that are more lenient towards larger companies, where they take 120 days and at the end have to submit a new plan on how they’re going to fix the problem.
These new proposals could make a big change to how companies conduct business once they become aware of potential insolvency, and even more crucially, might allow the UK to catch up with its other western counterparts. Not all of the details are clear on how this proposal might work out but overall, this could be a great stride forward to help companies stay afloat that otherwise might have failed. We are certainly all for anything that can help more companies survive. Full details of the R3 proposal can be found here: A Moratorium For Businesses: Improving Business & Job Rescue in the UK.
If you are considering insolvency then Kingsland Business Recovery can help you weigh up the options that are available. To discuss further please feel free to contact one of our directors on 08009553595 for a no obligation, confidential chat. Or alternatively, drop us an email at email@example.com.