On the horizon: Insolvency and restructuring in 2020 (part 2)
17 January 2020
The Airline Insolvency Review (AIR) was set up in 2017 in the wake of the Monarch administration. It published its recommendations in spring last year, which the Government has said it will consider as part of its own 'Aviation 2050' project. The Government appears to be inclined toward the AIR's recommendation that a 'Special Administration Regime' (SAR) for airline insolvencies be introduced. This SAR would make passenger repatriation a priority (ahead of repaying creditors), and would allow a 'keep the fleet flying' approach: insolvent airlines would be allowed to use their own planes. R3 has concerns about the SAR, as set out here. In summary, for a number of practical reasons, it is very difficult to keep an insolvent airline's planes servicing routes, and may in fact lead to more risks for crews and passengers, while lower returns to creditors will deter lending and suppliers to the consumer aviation sector as a whole. The topic of an airline SAR was revisited by the Government after the insolvency of Thomas Cook, and got a mention in the Queen's Speech in October.
The Government is expected to introduce draft legislation at some point this year, and we will do our best to get across the profession's view that a SAR could very easily cause more problems than it solves.
The Pension Schemes Bill had its first reading in the House of Lords earlier this month. The Bill contains proposals to impose criminal liability in respect of "any persons involved in conduct risking accrued scheme benefits" and "avoidance of employer debt". R3 is concerned that a carve-out for insolvency practitioners will only apply after they have been formally appointed, which could introduce liability if advice is given prior to an insolvency procedure; the new liability may also have a chilling effect on restructuring and rescue attempts. The Pensions Regulator will also be granted new powers to fine insolvency practitioners up to £1 million, if they "knowingly or recklessly" provide information to pension trustees that is "false or misleading". As insolvencies tend to be very fast-moving events, a newly-appointed office holder could risk being found later to have provided false or misleading information inadvertently, leading to a hefty fine. Rather than supporting the integrity of defined benefit pension schemes, taken together these proposals could actually make it harder for the insolvency and restructuring profession to support business rescue.
The Bill will have its second reading in the Lords on 28 January.
We were very pleased with some of the recommendations in last year's Government consultation on Companies House reforms, as we believe that a few relatively minor changes to how Companies House operates, especially around verifying the identity of current and prospective company directors, could have a significant, positive impact on the insolvency and restructuring profession's ability to tackle fraud. Where the Government could go further is to make it as simple to restore a dissolved company to the register as it is at present to dissolve a company in the first place. This would make investigations simpler and less onerous, potentially increasing the amounts which can be returned to creditors in cases where companies have been dissolved rather than be subjected to scrutiny via an insolvency process.
There has been no news on the reforms' progress since the consultation closed in August, but we expect a response from the Government this year, and will ensure that the proposals to tackle fraud are kept on the political agenda.
In just over a year's time, in early 2021, a 60-day 'breathing space' free from creditor action will be introduced for people in debt, to allow them to seek accredited advice and find a debt solution which best suits their circumstances. R3 has campaigned for this outcome, and we are looking forward to the scheme's introduction. There are some practical questions still remaining about how the scheme will operate - how will eligibility for the scheme be determined? How will all creditors be informed, if the indebted person does not list all organisations to which money is owed in their initial list? How will the breathing space interact with other forms of personal insolvency? - and R3 is liaising closely with the relevant Government departments, to make sure the profession's suggestions and concerns are taken into account. This work will be ongoing throughout 2020. Legislation will also be introduced this year at some point to get breathing space onto the statute book before 2021.
Energy sector insolvencies
In response to a steady stream of insolvencies of energy suppliers, which accelerated in 2018 and 2019, the sector's regulator Ofgem published a review in autumn last year ('Supplier Licensing Review: Ongoing requirements and exit arrangements'). When an energy provider enters an insolvency procedure, its remaining customers are moved to a new supplier, while the insolvency practitioner appointed as office holder is handed the responsibility of posting final bills, and calling in debts or issuing customer refunds where appropriate. This can prove tricky, as companies on the edge of insolvency often do not keep perfect records of customer accounts, especially if there has been an outflow of key staff members. Ofgem's review contained "a package of proposals for...'exit arrangements' to mitigate the negative effects of supplier exit"; R3 has responded to the review, pointing out the practical challenges facing office holders, and the interaction of different regulatory frameworks. We now await Ofgem's response, which we expect to be published at some point this year, and will represent the profession's views as and when next steps are announced.
How R3 will change in 2020
Last year, we launched R3's Strategic Plan - "Taking us to 2023". The plan has already had a definite impact on how R3 operates, as well as providing us with a roadmap for the future. We hope that members will be able to notice even more changes in 2020 - stay tuned for more news. One obvious change on the way: in coming weeks, we are planning to relaunch R3's website, to make it more user-friendly.
R3's 2019-2020 President, Duncan Swift, will hand over to R3's current Vice-President, Colin Haig, in the spring of this year. Duncan is an excellent representative for R3 and for the profession, and has done a great deal of work with the rest of R3's Executive Committee, Council, and staff to implement the Strategic Plan, and to promote and defend the insolvency and restructuring profession. We thank Duncan for his commitment to R3 to date, look forward to working with him in the final months of his Presidency, and look forward to welcoming Colin as President in due course.
Combined with the issues we listed in part one of this post, as well as any 'unknown unknowns' which the year may throw at us, it is safe to say R3 is gearing up for a busy 2020. Do keep reading R3 Thinks for more explainers and commentary on insolvency and restructuring issues, and follow R3 on Twitter and LinkedIn for more of our news and insight.
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