The government must not neglect its business rescue reform plans as it prepares for Brexit, says insolvency and restructuring trade body, R3.
Plans to introduce the government’s year-old reform proposals – or any other corporate governance reforms – appeared to be absent from today’s Queen’s Speech.
As this will be the only Queen’s Speech for two years, this could put the UK economy on a less competitive footing as the country prepares for Brexit.
R3 has long argued that action to update the UK’s restructuring framework is needed to ensure the UK remains an international insolvency and restructuring hub post-Brexit.
The plans, originally put forward in May 2016, included proposals to give business directors last chance protection from creditors in order to turn their business around before an insolvency procedure, reforms to ensure struggling businesses receive vital supplies, and the introduction of a new court-based restructuring procedure, similar to the US’s Chapter 11 bankruptcy proceedings.
Mike Pavitt, chairman of the Southern Committee of insolvency trade body R3 and corporate restructuring and insolvency partner at Paris Smith solicitors, Southampton, says: “The UK has one of the world’s best insolvency and restructuring frameworks. It attracts both businesses and investment to the UK by ensuring businesses’ financial difficulties can be resolved quickly and effectively.
“Unfortunately, Brexit risks creating barriers to cross-border insolvency and restructuring work, while other countries, including EU members and places like Singapore, are improving their restructuring frameworks. We need to reform to stay ahead of the competition.”
Mike adds: “We welcomed the government’s reforms when they were first proposed, and with some alterations they could make an incredibly valuable addition to the UK’s business landscape. They could make business rescues more viable and will be attractive to international companies and investors.”
“The challenges of minority government and the pressure that Brexit will put on the legislative timetable threaten to delay these much-needed changes. Both the government and opposition parties should back the reforms and get them onto the statute books so the UK can show it is still open for business.”
Mike Pavitt adds: “The business rescue reforms are a key change, but they are not the only ones the insolvency and restructuring profession wants to see. Reform is also needed, for example, to make it easier to intervene earlier to help businesses with pension scheme deficits, but it’s not clear from the Queen’s Speech whether proposals from this spring’s pension consultation still feature in the government’s plans.”
Financial guidance reforms announced
R3 welcomes the inclusion in the Queen’s Speech of plans to push ahead with consumer reforms, including the creation of a ‘Single Financial Guidance Body’.
At the end of 2016, the government consulted on merging existing financial guidance bodies into one.
Mike Pavitt says: “A new single advice body would be welcome, and the provision of debt advice should remain a government priority. Any new body should look also look at how people in debt sort out their situation and at the stigma associated with debt and insolvency.
“We look forward to working with any new body to break down barriers that stop indebted individuals from getting the advice they need and dealing with their debts in an appropriate manner.”
The government’s commitment to reform of mental health services is also welcome. R3’s recent research has found that personal finance issues have a significant impact on people’s mental health, while those in mental distress may find it far harder to deal with their finances, allowing debts to spiral out of control.
It looks like the door could still be open to introduce a ‘Breathing Space’ from creditors for indebted individuals.
Since 2015, R3 has called on the government to give financially indebted individuals a 28-day break from creditor action – ‘Breathing Space’ – to use as a final opportunity to receive professional advice.
Mike Pavitt says: “It’s vitally important that indebted individuals end up in a debt solution appropriate to their situation. This doesn’t always happen, and the difficulty of being able to get professional, independent advice in a relatively unpressured environment is a factor.
“A short ‘Breathing Space’ would give people in debt the chance to seek advice and deal with their debts effectively. Both the Conservatives and Labour parties featured ‘Breathing Space’ in their manifestos, which will make it easier for the government to pass any Bill containing this proposal.”
He adds: “The length of the ‘Breathing Space’ matters: too long and it’s not fair on creditors and it may discourage lending. The government should make sure it listens to creditor voices when it consults on the proposals.”
Other reforms
Prior to the election, R3 also called on the government to:
• Ensure that insolvency appointments and relevant court judgments continue to be recognised across Europe as part of any Brexit deal
• Encourage financially distressed individuals and businesses to seek early professional advice
• Take action to resolve the conflict between employment and insolvency law
• Take action regarding concerns about the insolvency practitioner bonding market.
Mike Pavitt says: “By threatening agreements that make it easy to resolve insolvencies and restructurings across EU borders, Brexit presents a huge challenge to the insolvency and restructuring profession – and by extension, creditors and struggling businesses. The government must ensure Brexit does not create unhelpful barriers to dealing with cross-border insolvencies.
“Beyond Brexit, there are issues in the insolvency and restructuring landscape that the government and opposition will need to address urgently. It’s important that Brexit doesn’t become a distraction.”
