2020: Round-up of the year in insolvency and restructuring
22 December 2020
The prediction posts we wrote at the start of this year (part 1 and part 2) look, in some ways, like missives from another time. As the end of the second post reads, "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."
It is fair to say that the coronavirus pandemic is the ultimate 'unknown unknown' - something that we had not planned for, but which came along and had an impact on every area of our business, and on the insolvency and restructuring profession's operations more widely.
As a result, the year did not pan out quite the way we had predicted. However, like R3's members, and like businesses and organisations up and down the country, we adapted.
Summer of change: CIGA and the Finance Act
It has been oft noted that the demands and particular circumstances of the pandemic have greatly accelerated structural changes in how we work, from greater adoption of technology in all aspects of business life, to a far higher percentage of employees working from home. Likewise, long-planned changes to the insolvency and restructuring framework, which had been slow-moving as the topic was pushed down the priority list by Brexit, suddenly found themselves front and centre.
The introduction of the Corporate Insolvency and Governance Act in June quite possibly set a parliamentary record for the speed of an Act's progress from initial draft to duly passed legislation. Brought in to add new tools to the insolvency and restructuring landscape, including the moratorium and the Restructuring Plan, we welcomed the Act and the attitude from Government that it represented - namely, a willingness to think imaginatively about the needs of companies which are struggling, and to engage positively with the profession, to harness its wish to have as effective a toolkit as possible.
If only this spirit of engagement and imagination had carried over to the Government's attitude towards the Finance Act, enacted in July, which contained provisions to make HMRC once again a preferential creditor for certain kinds of tax debts as of 1 December. We warned the Government, again and again, that this move would damage the UK's business culture in several ways, from making rescue attempts more difficult, to restricting the flow of floating charge funding to companies of all types and sizes, and more. Our campaign to get MPs and Peers to listen had notable successes, with R3 and our members' views mentioned many times in the Houses of Parliament as the Finance Bill and the Corporate Insolvency and Governance Bill were being debated.
Although Crown Preference has been (re)introduced, our efforts to get the policy reversed will not stop. With corporate insolvency numbers expected to rise once current support schemes and bans on enforcement actions are stopped, the last thing UK companies need is a potential roadblock to rescue in the form of Crown Preference - a point which we will pick up and run with in 2021.
Other notable events
Even without the CIG Act and Crown Preference, it would have been an eventful year for the insolvency and restructuring profession, and for R3's Press, Policy and Public Affairs team.
Ofgem's consultation in June on energy company insolvencies left us with more questions around how the energy regulator expects insolvency practitioners appointed as office holders in such cases to reconcile its new demands with their own rigorous and regulator-enforced duties - a point we will make to Ofgem in due course.
There was some good news in the fight against economic fraud, as the Government's response in September to its earlier consultation on the powers and role of Companies House was published. Again, we broadly welcomed the measures unveiled, while having some questions and concerns around the practicality of some of them - yet another agenda item for next year.
The October news that the Government is looking to expand the ability of the Small Business Commissioner to clamp down on late payment, an endemic problem for many companies, made for an interesting read, and we look forward to responding to the consultation.
The Government's decision that connected party sales in administrations will not be banned, announced in early October, gave the profession some relief, as the prospect of a ban (targeted at pre-pack administrations) would have greatly hampered efforts to rescue struggling businesses. However, serious questions around the mandatory scrutiny that such sales will now be subject to remain, and will be high on the agenda for our engagement with Government officials in 2021.
And even at this late date, we do not know what the final shape of Brexit will look like. Even if the Prime Minister is able to secure a deal in the ongoing negotiations, it is highly unlikely that this will be a comprehensive agreement that will cover professional services issues, and so automatic recognition of insolvency judgements and appointments between the UK and EU will become a thing of the past from 11pm, Thursday 31st December. Watch this space for more news as we get it.
What is in store in 2021?
Looking ahead, 2021 will see the introduction of the long-planned breathing space for people in debt (the draft legislation was published in August), which should help people struggling with debt to seek high-quality advice, and choose a solution suited to their circumstances. Other issues on our plate could include the next steps on pre-packs, bonding, a review of insolvency practitioner regulation, and more - although, with luck, it will not include any 'unknown unknowns' on the scale of those experienced in 2020...!
Finally, we would like to say a big thanks to all our readers - we hope you have enjoyed our posts this year and look forward to welcoming you back in 2021.
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