Key Developments in UK Insolvency Structures Announced
On 26th August 2018, the UK government announced its legislation change some of the aspects of Insolvency systems and UK restructuring. The reforms made are to act as a response to the corporate insolvency for domestic and other factors that was highlighted. There are claims that the proposal is favorable to the debtors as compared to the creditors. Let us look at some of the developments announced.
A new moratorium procedure
A new moratorium will exist for all the solvent companies to allow them more period to review reconstruction of its options for rescue. Also, the company is expected to continue its debt payment until it is due. Moreover, a company is allowed to apply for a moratorium if it becomes insolvent when no action is implemented, but if it is not insolvent and is capable of carrying on business and meeting the current obligations and the cost at the moratorium period.
Also, a company has to have the possibilities of accepting a compromise or an arrangement with creditors by using probability balance (which a monitor is used to determine). The monitor is a practitioner of the licensed insolvency whose responsibility will be notifying all the creditors of the current procedure. The monitor is unable of taking an administration appointment for 12 months’ period with a company, but they can act as a supervisor or nominee of an upcoming company voluntary arrangement.
Also the monitor has to accept any rejections of a company throughout the business. The previous 28 days moratorium arrangement is then extended for 28 days or even more if more than 50 percent of secured creditors approve by value of another 50 percent more of unsecured creditors by value. The moratorium can be objected by creditors through court which can be done at any moment of the moratorium period.
Protections concerning goods and services suppliers
The contractual termination does not allow a supplier to terminate that another party is put in the informal insolvency process, a new restructuring procedure, or a pre-insolvency process. The prohibition doesn’t prevent termination for any termination reason upon notification or under the fixed term contracts.
Greater accountability for directors
In case a claim is reasonable, all procedures the director has taken will be taken into account which includes taking advices from professionals that impacts the sale and engaging major shareholders in sale negotiations. If they fail to do so, it may lead to disqualification proceedings. Also, the disqualification process will be extended to allow investigations of former directors regarding their conducts.
New stand-alone restructuring procedure
In these reform, a company is allowed to propose a reconstruction plan to the creditors. The procedure resembles the existing(SoA) system of arrangement, the SoA is applied in interpretation. The courts are mainly involved in approving and examining proposals; thus, the company should propose plans and creditors can submit counter proposals. The approval value has to have more than 75% monetary and a minimum of 50% on the number of creditors that voted, whether with the support of insolvency practitioners Manchester or others.