The insolvency and restructuring wishlist for the Budget 2021
24 February 2021
The Chancellor is due to deliver a Budget speech on 3 March. With significant challenges facing many sectors of the UK economy, and questions around how long support for people and businesses will be maintained, Rishi Sunak MP will have many weighty topics to consider as he stands up to deliver his speech.
In order to prevent a rough landing for companies (and the jobs they support) as support schemes unwind, the insolvency and restructuring profession will play a key role in supporting the economy in coming months. We have written to Sunak ahead of his speech, to set out three issues we would like to see included in the Budget, in order to enable the insolvency and restructuring profession to carry out its work in an environment which is as conducive as possible to business rescue.
Three measures to help rescue businesses
First, we want to see a medium-term plan for the withdrawal of the temporary COVID-19 business support measures, which enables no-longer viable businesses to wind down in an orderly way, while, crucially, giving those companies with a future the opportunity to rescue or restructure their business.
While the Government's support measures have so far prevented a surge in insolvencies, the lack of a clear medium-term plan with regards to the withdrawal of these support packages has made it difficult for directors to know when to seek advice, as well as for the insolvency profession to plan restructuring proposals with much certainty about the future trading and financial circumstances facing these firms.
For a long time now, we've emphasised the importance of seeking early advice. Early intervention increases the range of rescue options available to businesses and enables more jobs to be saved, so having a plan in place for a return to some kind of normal ways of doing business will encourage directors to plan ahead, rather than feeling at the mercy of events.
Second, we would like the Government to adopt a cross-departmental policy to support all viable restructuring processes. This would entail joined-up thinking across different parts of the Government, to give companies which would be viable but for Covid the support they need to return to sustainable trading.
Support for viable restructuring proposals would provide those firms with time to deal with accrued pandemic liabilities, thus avoiding a formal insolvency process and a potentially more severe outcome for employees and creditors. This cross-Government approach is not currently in place.
Finally, HMRC should adopt a more engaged and supportive role as a creditor in insolvency and restructuring processes. HMRC is often a major creditor in insolvencies, and R3 members have reported it can often be a 'passive' creditor, not always supporting efforts to make restructuring procedures as effective as possible. HMRC has historically not voted in favour of CVA proposals, for example, even when not doing so has led to less satisfactory outcomes for all creditors - including HMRC.
With HMRC having gained an even more significant role as a creditor as a result of the imposition of Crown Preference in December last year, its approach to voting on procedures must be rethought, and its staff should be adequately trained to understand the importance of HMRC's role in determining the success of insolvency and restructuring processes. The demands of the pandemic, and the changes it has wrought in how companies operate, mean a step-change in approach in supporting the restructuring of viable companies, and engagement with the insolvency and restructuring profession to this end, is very much needed.
A road map to recovery
Taken together, our recommendations for the Chancellor to include in the Budget would help to rescue viable businesses where possible, and to maximise returns to all creditors where necessary, thus reducing the financial cost of corporate insolvencies on other parties, from suppliers to pension schemes.
We hope that the Budget will set out a way forward for the UK's business community, giving some much-needed certainty during a time of repeated upheavals, and allowing viable companies to prepare themselves for the predicted economic recovery in the year ahead, and beyond.
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