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12/06/2017

The implications of the general election result for the insolvency and restructuring profession

A week is a long time in politics; a six-week general election campaign is an eternity. Once again the pundits, and indeed almost everyone, have been confounded by the outcome of an election that only a few weeks ago seemed a settled matter.
 
While it is still too early to draw many long term conclusions for the political and economic landscape, it is clear that Theresa May intends to continue as Prime Minister, leading a minority government. One of the obvious implications of this arrangement for our profession is that the government’s ability to introduce legislation will be severely restricted as it will not want to press forward with any issue that it does not expect to win a vote on. Indeed, the upcoming Queen’s Speech represents the first big challenge for the government – if the vote on the speech is lost, further instability will ensue.
 
This legislative uncertainty could present both problems and opportunities for the profession. A minority government means that compromises will need to be made on legislation. R3 will continue to work hard to promote the value of our profession and its legislative priorities to parliamentarians of all political parties across the House of Commons and House of Lords.
 
The outcome of the general election could also lead to a ‘softer’ Brexit given the difficulty in securing parliamentary approval for a ‘harder’ version; R3 would welcome an approach to the negotiations which protects the ability of the insolvency and restructuring profession to work efficiently and effectively across the EU.
 
During the general election, R3 called on the next government to address a number of priorities for our profession to ensure the UK maintains its status as a world-class insolvency and restructuring hub and ensure that the UK remains an attractive place to do business. On our ‘wish list’ for the new government is:
 
1. Corporate insolvency framework
 
R3 would like the new government to move ahead with its proposals for reform of the UK’s corporate insolvency framework (subject to amendments to some of the detail, such as the proposed length of the moratorium). The government’s consultation in May 2016 outlined four proposals for reform, with the objective of ensuring ‘that the insolvency framework supports business rescue where possible, maximising returns to creditors where possible.’ We are expecting the government to respond to the consultation shortly but a lack of legislative time with Brexit and now a minority government means that the chances of legislation being brought forward are slim. R3 will therefore be working very hard over the coming months to ensure that the profession’s views and concerns are addressed should legislation be brought forward.
 
Looking more widely, with the EU publishing a new ‘Insolvency, Restructuring and Second Chance’ Directive (which in light of Brexit may not apply to the UK) and other countries around the world looking to bolster their own restructuring frameworks – Singapore in particular is seeking to become the international centre for insolvency and restructuring – it is vital that the UK keeps its corporate insolvency framework up to date and competitive in the global market for restructuring services.
 
2. Brexit and mutual recognition
 
R3 has called on the government to ensure that the benefits of the EU Regulation on Insolvency and the Recast Brussels Regulation are preserved in negotiations via an equivalent treaty between the UK and the EU. If the benefits of these regulations are not preserved, jobs, growth, inward investment and productivity will be harmed and the cost of borrowing is likely to increase. The UK’s position as a centre for international restructuring and insolvency work would also be undermined.
 
One of the most significant outcomes of the election is that there is likely to be a change in the government’s approach to Brexit, with a number of the prime minister’s Cabinet colleagues calling for a ‘softer’ departure from the EU. R3 would welcome any approach which protects the ability of the insolvency and restructuring profession and framework to function across borders, given the importance of the profession’s cross-border EU work to the wider UK economy.
 
3. Seeking debt advice from appropriately qualified professionals early enough
 
The government has already confirmed its commitment, through its new Industrial Strategy, to help businesses to start and scale up. As part of the government’s aims to ensure that more businesses can access the finance and management skills they need to grow and succeed, R3 encourages the government to work closely with the insolvency and restructuring profession to ensure that businesses in financial trouble seek advice as early as possible, to give them the best possible chance of long term survival.
 
There are a number of other issues that R3 is keen for the new government to address over the next parliamentary term:
 
  • Resolving the conflict between employment and insolvency law in collective redundancies to better protect taxpayer money and ensure viable businesses can be rescued;
  • Working with HMRC to improve communication between the profession and the department to ensure that viable businesses are rescued and efficient returns are made to creditors, whilst also ensuring that any new tax reforms do not restrict opportunities for business rescue;
  • A review of The Pensions Regulator engagement with insolvent or financially distressed companies to improve the long-term prospects of the pension scheme and the company;
  • Ensuring progress is made on concerns regarding the insolvency practitioner bonding market and a satisfactory outcome for the profession is reached.
  • Move forward with proposals for a new ‘breathing space’ tool for indebted individuals – particularly given that both the Conservative and Labour election manifestos contained pledges to introduce such a scheme.
We will also be seeking clarification on a number of specific measures which were originally included in the Finance Bill earlier this year, including the introduction of Making Tax Digital and changes to Corporation Tax loss-relief.
 
It is still too early to know what to expect exactly from Theresa May’s government, but regardless of the uncertainties, R3 will continue to work on your behalf to ensure that the UK retains its world class insolvency and restructuring framework.
 
Adrian Hyde
R3 President 

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.