The Corporate Insolvency and Governance Bill is steadily making its way through Parliament. Having passed through the Commons this week, it is anticipated to make it onto the statute books in late June or early July. Destined to change the UK’s “Restructuring Toolkit” fundamentally the Bill’s most significant provision is to give company directors the power to seek a moratorium without the need to intend to appoint an administrator.
There are a couple of tests that need to be passed by the company making the application. The first is that the company making the application for moratorium must not have been subject to any insolvency process in the last 12 months. The second that the company can demonstrate it is unable to pay its debts as they fall due.
The Bill introduces the role of the Monitor, who must confirm that, in his/her opinion, the rescue of the company as a going concern can be achieved. The appointment of the Monitor, made by the directors, will be an Insolvency Practitioner who has this potentially dubious as yet untested obligation.
The moratorium period can last up to 20 days and extended for a further 20 days without creditor approval to allow the directors to put together a Restructuring Plan.
It is worth noting that during the moratorium period payments in respect of financial contracts (third party loans typically) need to be maintained.
Such a plan, based on the existing process for a Scheme of Arrangement but with some tweaks, which I will not go into here, to make this option significantly more debtor-friendly.
The critical obligation in this process rests with the IP, as set out above.
The question is how does the IP arrive at this point, especially initially when there is no guiding case law. No professional will want to rely on the directors in such a situation. Indeed the IP will be on much firmer ground if he or she reviews a plan prepared by a third party with professional experience of both preparing business plans and managing turnarounds.
And that, if I may be so bold, is where turnaround practitioners will be an IP’s greatest ally. Not only pre the approval of the Restructuring Plan but after where their ongoing involvement would provide the best possible chance of the plan succeeding.
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