Views from the R3 President - November 2018

29 November 2018

The Budget

Members won’t have missed the Chancellor’s October Budget surprise: the partial return of HMRC’s preferential status. This year’s Budget was moved to a Monday to avoid Halloween-based headlines, but the idea of crown preference returning is a potentially scary one all the same.

This proposal came out of the blue. There has been no consultation, and there was no suggestion that this would be thrown into the mix. As I write in my latest RECOVERY column, HMRC may well have wanted to restore its preference for some time but, up until now, Treasury policymakers have been unwilling to go back to the pre-Enterprise Act framework. However, with the Treasury under pressure to keep the deficit down while ‘ending austerity’, this idea is perhaps an easy piece of low hanging fruit to boost tax take.

Members we’ve spoken to already are almost uniformly unhappy with the proposal (due to come in from April 2020). Be in no doubt that we’ll be making sure these views are heard in Whitehall.

While Crown preference hogged the spotlight, there were other insolvency-related policies in the Budget. HMRC plans to make directors personal liable for tax debts where there is a risk of tax or insolvency ‘abuse’ (we’ve been cautioning HMRC on these proposals for some time now, and will continue to do so), while a two-month personal insolvency ‘breathing space’ and a new statutory debt repayment plan took a step closer with the launch of a government consultation. We’d be keen to hear members’ views on all these issues, so please feel free to email me at [email protected].

Brexit

The major political story since the Budget has been the publication of the UK’s Brexit Withdrawal Agreement (and the subsequent political intrigue over Theresa May’s future as prime minister). It’s worth noting that insolvency is specifically covered by the Agreement: any EU-UK cross-border case where main proceedings begin before the end of the planned transitional phase – currently a very vague “20XX” – will continue to be subject to the European regulations which allow for automatic reciprocal recognition of appointments and judgments.

That’s the good news. The bad is that what comes next is still far from clear. While the Withdrawal Agreement stretches to 585 pages of detail, the current plan for a post-Brexit EU-UK trading relationship is just six and a half pages long. Missing from these pages is any mention of insolvency or the mutual recognition of civil judicial processes. On top of this, the Withdrawal Agreement itself may not get through Parliament. We’ll keep members updated on how things develop.

Political Engagement

One of the highlights of an R3 president’s year is the annual President’s Lunch, held in Westminster. This event brings together R3 members and key politicians to talk about what the insolvency and restructuring profession is seeing ‘on the ground’ at the moment, and to discuss the profession’s challenges and concerns. Joining us this year were Treasury Select Committee chair Nicky Morgan MP and shadow insolvency minister Bill Esterson MP, among others. It was really useful to talk about our profession’s work with influential parliamentarians in a relaxed atmosphere, and to provide some context to insolvency stories which MPs have been reading and hearing about in 2018.

It’s been a busy month of working with politicians in Scotland, too: over the past few weeks, R3 has caught up with six senior MSPs, including the leader of the Scottish Lib Dems, Willie Rennie, the Conservatives’ shadow finance spokesperson, Murdo Fraser, and members of the Scottish Parliament’s Economy, Energy and Fair Work Committee. R3 also appeared in front of the committee to give evidence on the implementation of the Common Financial Tool regulations in Scotland. My thanks to Tim Cooper, Eileen Blackburn, Rachel Grant, and Eileen Maclean for all the hard work they’ve been doing on behalf of our Scottish members.

One of the hurdles we face when talking to politicians, journalists, and others, is that so few of them have a clear idea of who exactly insolvency practitioners are and what they do. To help fix this, we’ve put together a new ‘guide to insolvency practitioners’ which addresses some basic questions. Please feel free to use this with your own contacts.

Corporate Insolvency Reforms

As I wrote last month, R3 has been holding forums around the country to give members a chance to have their say on the Government’s proposals for corporate insolvency reform. These forums, in Leeds and London, as well as this month’s SPG Forum, have been a really useful way of hearing exactly how the planned moratorium and restructuring tool might be used. The answer, in short, appears to be – ‘not much’. Not without changes, at least.

There are some consistent messages we’ve been hearing. There is plenty of bemusement at plans to exclude insolvent companies from the moratorium, with members scratching their heads trying to think of solvent companies who would need protection from their creditors. And if members were concerned that no company would want to use the moratorium, they were also worried that no insolvency practitioner would want to take on the planned ‘Monitor’ role.

Everything we’ve heard is being fed back to the Insolvency Service and will help change the reform package for the better, while the spread of feedback we’ve received – from large firms, small firms, lawyers, appointment takers, and restructuring experts – has been really useful.

There are some good ideas in the Government’s reforms – and hopefully members’ suggestions will help those ideas work in practice.

One of the reasons we’re keen to see the UK introduce insolvency reform is that doing so would help the UK maintain its status as an international hub for restructuring and insolvency work. The danger is that the UK sits on its laurels while other countries make their own reforms and catch-up to us. Indeed, in the very latest World Bank rankings of insolvency frameworks (launched in October), the UK sits 14^th for the second year in a row. By contrast, the Netherlands has recently made a number of reforms and has climbed from 11^th in 2016 to 7^th this year.

Stuart Frith, R3 President

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Parliamentary and press update

November 2018

Parliamentary President’s Lunch

R3 was again joined by a number of senior cross party parliamentarians at the annual President’s Lunch event in Westminster, with attendees including Rt Hon Nicky Morgan MP, Chair of the Treasury Select Committee, Bill Esterson MP, Shadow Insolvency Minister, and Lord Cromwell, Vice-Chair of the Fair Business Banking APPG.

Many parliamentarians raised questions about the Johnston Press case which had developed over the preceding few days, illustrating the heightened awareness of insolvency issues in parliament. Also of interest to guests were the Government’s corporate insolvency reforms, Brexit, and the Chancellor’s recent decision to partially restore HMRC’s status as a preferential creditor. MPs and Peers were also keen to discuss the state of the UK economy from the profession’s perspective. Guests were also provided with a copy of R3’s new guide to the role and value of insolvency practitioners, here, which sets out how important the profession and its framework is to the wider economy.

R3 will be following up with parliamentarians on these issues over the coming weeks and months.

Scottish Parliamentary engagement

November also saw R3 meet with six senior MSPs, including Murdo Fraser MSP, the Conservatives’ shadow finance spokesperson, Gordon Lindhurst MSP, Chair of the Scottish Parliament’s Economy, Energy and Fair Work Committee, and the leader of the Scottish Lib Dems, Willie Rennie MSP.

The meetings provided an opportunity to brief the parliamentarians about the work of the profession in Scotland and to highlight the importance of an effective insolvency and restructuring framework across the UK. R3 Scotland Chair Tim Cooper, Scottish Technical Committee Chair Eileen Blackburn and R3 Council member Rachel Grant were also able to answer a number of questions relating to the devolved issue of personal insolvency.

Tim and Eileen are due to meet the new Scottish Insolvency Minister, Jamie Hepburn MSP, in January.

What’s coming up?

R3 will be engaging with the Government over the coming weeks on a number of issues: continuing to discuss with the Insolvency Service our views on the corporate insolvency and corporate governance reform proposals; working with HMRC to challenge and highlight the potential impact of the Government’s decision to partially restore its preferential creditor status; and, reaching out to HM Treasury to respond to the further consultation on the Breathing Space proposal for indebted individuals (along with the Government’s plans for a Statutory Debt Repayment mechanism).

R3 Thinks

Our latest R3 Thinks posts include pieces on Talk Money Week 2018, the Government’s recent Budget Statement, and an update on the corporate governance and insolvency reform proposals.