UK fails to improve its standing in the World Bank insolvency rankings – R3

02 November 2018

The lack of improvement in the UK's standing in the World Bank's latest insolvency rankings underlines the need for UK corporate insolvency reform, says insolvency and restructuring trade body, R3.

For the second year running, the UK is at 14th place in the "Resolving Insolvency" table in the World Bank's Doing Business report (published on 31 October). This follows a fall from 13th to 14th in 2016's rankings.

As the UK stands still, many other countries have substantially improved their insolvency and restructuring frameworks, in order to attract more international restructuring deals. The Netherlands has recently made a number of reforms and has climbed from 11th in 2016 to 7th this year.

R3 believes that the UK government should take heed of the implicit warning in the latest rankings, and act quickly to implement many of the proposals for insolvency reform which were announced over the August Bank Holiday.

Stuart Frith, President of R3, commented:

"The UK cannot afford to stand still when it comes to strengthening our insolvency and restructuring framework. Although the UK framework is strong and internationally well-regarded, there are still opportunities to make our framework more responsive, and to make it easier to rescue jobs and businesses.

"With continuing uncertainty about how Brexit will end up affecting cross-border restructuring and insolvency cases, the UK has much to gain from acting swiftly to modernise the underlying framework, and maintaining its international competitiveness.

"It's very promising that the Government has recently reiterated its commitment to corporate insolvency framework reform, but now what is needed is follow-through, to ensure that the insolvency and restructuring framework - a key ingredient in a successful economy, as the World Bank recognises - remains fit for purpose, and leads the international pack."

When publishing its reform package in August, the Government said it would introduce the changes through legislation when 'parliamentary time allows' - but did not give a clear timetable for this.

Stuart Frith adds: "We look forward to working with the Government to progress these reforms, making sure that the views of the insolvency and restructuring profession are listened to and acted on. The reforms aren't perfect and there are still tweaks to be made, but overall they could help improve our world-class framework.

"A rigorous and responsive insolvency and restructuring framework is key to the smooth functioning of any economy. The UK performs well on measures such as time taken to resolve cases and recovery rates, but the strength of our recovery framework performs less well than many other countries, according to the World Bank. Unless this can be improved upon, our whole economy will see the effects."

Other countries which have improved their insolvency frameworks recently are rising in the rankings. The Nordic countries are performing well (Finland in 2nd, Norway up to 5th, Denmark to 6th, and Iceland to 12th), while Belgium has jumped up three places in the last year, from 11th to 8th, and Slovenia is up one place to 9th. 

Brexit and insolvency - explained

As an EU member the UK benefits from key EU Regulations which mean UK insolvency and restructuring procedures and judgments are recognised across the EU (and vice versa). This means a UK insolvency practitioner can trace, secure, and realise assets of an individual or multi-national company across the EU without having to apply for recognition in individual countries first.

Before the introduction of the Regulations, the process of seeking recognition was time-consuming, costly, and unpredictable: local courts might not recognise an overseas insolvency appointment or have time to hear the case.

In its July White Paper on the UK's post-Brexit relationship with the EU, the Government said it would seek an agreement with the EU which was similar to the existing framework of reciprocal recognition, an aim supported by R3. However, the Government's paper setting out the impact of a 'no-deal' Brexit on cross-border insolvency cases, published in September, was said to be "

The World Bank Statistics - explained

The UK was 13^th in the World Bank's rankings when the current methodology was introduced (in the 2015 report).

The World Bank scores insolvency frameworks on criteria including their recovery rate for creditors, the time taken to resolve insolvencies, the cost of insolvencies, whether businesses and companies can be rescued, and the strength of the framework.

Separately, a June 2017 OECD report found the UK's insolvency framework was the OECD's best for dealing with 'zombie companies' – those companies which are avoiding insolvency but which have few long-term prospects for growth. However, the report noted several instances of other countries reforming to catch up to the UK.