R3’s Press, Policy and Public Affairs update, October 2020
06 November 2020
October brought news on pre-pack administration and late payment, a debate on the extension of some of the temporary measures in the Corporate Insolvency and Governance Act, a R3 new resource for COVID-hit small businesses and continued media interest in the profession as the COVID pandemic entered its seventh month.
Pre-pack administrations hit the headlines following the Government's long-awaited announcement on reforms to connected party pre-pack sales, with R3 President Colin Haig quoted in the official Government press release on the measures. The Government has stated that connected party sales will not be banned, but will face mandatory "independent scrutiny", which it said will "improve confidence and transparency in pre-pack administration sales". The plans will ensure that an independent opinion, or creditor approval, of a pre-pack sale is obtained as part of the process. One aspect of the reforms that requires more clarification is the qualifying criteria around the proposed 'evaluator', which as currently drafted are vague. R3 will be raising this with Insolvency Service officials as part of our ongoing discussions with them.
There is a wide range of views on pre-packs within the insolvency and restructuring profession. However, outside the profession the procedure is often not properly understood, and has attracted criticism as a result. Under the circumstances, the recent Government announcement, while not perfect, is positive, as the prospect of banning connected party sales in all types of administration was very much on the table - something that would have harmed the UK's business rescue culture. It is a relief that the Government stopped short of pushing that particular button, at a time when pre-pack sales will likely play an increasingly important, and necessary, role in helping to resolve corporate financial distress.
Late payment is another topic which is seeing some much-needed action: The Government's recently-announced consultation, "Increasing the scope and powers of the Small Business Commissioner", is seeking responses on how the powers of the Small Business Commissioner can be expanded in order to deal more effectively with late payment. The consultation could lead to a positive change in the way this issue is addressed by UK plc. R3 will be responding to the consultation to call on the Government to consider additional steps to deter late payments, which is especially important at a time when many companies are seeing their cashflows suffer as a result of the pandemic.
In mid-October, R3 published our Covid-19 CVA Standard Form, to provide the insolvency and restructuring profession with another tool to assist clients. It is free to access and can be found here. The Standard Form documents are intended for use by SME companies whose businesses have been affected by Covid-19, to save time and costs, and therefore make CVAs more accessible to the SME market, and has been well-received by R3's members and the wider profession.
During the House of Lords debate on the extension of the temporary measures in the Corporate Insolvency and Governance Act, we were pleased that Lord Bourne raised our concerns around what will happen once the extension expires, asking for "some clarity on the Government's approach to the making and extending of these rules [...] particularly given the level of corporate debt in the economy".
The Government's announcement on its connected party sales decision prompted us to issue a response, which was featured in the Times and in trade and regional media. The Standard Form Covid-19 CVA launch (see statement here) was also covered in the Times, and in specialist accountancy and business-to-business publications. Colin Haig, R3's President, was interviewed for an article about 'zombie' companies in the Daily Telegraph. R3's comments on the Q3 insolvency statistics were featured by the Press Association.
R3 spokespeople also briefed journalists from the Times, the Financial Times, and the Wall Street Journal.
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