Views from the R3 President - September 2018

19 September 2018

Last month saw the publication of updated Government plans for reforms which would represent the biggest overhaul of the insolvency and restructuring framework since 2002. The good news: the Government has listened to R3 and its members, and the latest proposals appear to be much more palatable to the insolvency and restructuring profession than earlier versions of the same reforms.

The not so good news? Brexit legislation is still dominating parliamentary time, which makes the timetable for introducing the planned new procedures and tools far from clear. With other countries overhauling their insolvency frameworks and with the risk of a ‘no deal’ Brexit uncomfortably high – a recent Government paper set out just how damaging ‘no deal’ could be to the UK’s insolvency and restructuring framework – the UK must make its own insolvency and restructuring reforms. We need to maintain our competitive advantage in insolvency and restructuring, offset any problems created for our framework by Brexit, and protect the UK’s reputation as a good place to do business.

This latest set of proposals combines ideas from two separate earlier Government consultations: a 2016 package of proposals for a ‘business rescue’ moratorium, new rules to ensure businesses being rescued continue to receive ‘essential supplies’, and a new court-based restructuring tool; and a series of 2018 proposals on ‘corporate governance and insolvency’ which were published in the wake of Carillion, BHS, and other high profile insolvencies. The 2018 reforms included plans to change the rules on liability for subsidiaries which have been sold by their parent company and subsequently become insolvent, new powers for insolvency practitioners to reverse ‘value extraction’ schemes, and the introduction of director disqualification for directors of dissolved companies.

We’ve been calling on the Government to move forward with its 2016 proposals for two years, working with MPs and Peers from across parliament, organising workshops for members and the Government, and speaking directly to ministers about why reforms are needed. We’re pleased to have some developments at last. That said, the devil will be in the detail and the repeated statement that legislation will be introduced when ‘parliamentary time permits’ tempers our optimism.

The 2018 reforms are a slightly different story: whereas we supported many of the 2016 reforms in principle, the later proposals were much more problematic. Much of what the Government put forward would have had a negative impact on the UK’s business rescue culture, while parts would have created unnecessary overlap with existing powers. Our summer roundtable on these proposals, sponsored by Pinsent Masons, saw R3 members and stakeholders from across the business community express concerns about the proposals directly to government officials. On a positive note, the Government now acknowledges that much more work on this latter part of the reform package is needed, so while the 2016 proposals are inching their way towards the statute books, there will be a lot more consultation to come on their 2018 counterparts. The present proposals are capable of improvement.

Members need to have their say on the proposals so that we can pass this feedback on to the Government. To help you have your views heard, we’re arranging member Discussion Forums on this issue – the first of these takes place on 11 October in London. You can register your interest and find out about future forums elsewhere in the country by emailing [email protected]. We would encourage all members to share feedback on the reforms with us, either at one of our forums or via email ([email protected]).

Stuart Frith

R3 President