R3’s Press, Policy and Public Affairs update, February 2021
05 March 2021
The shortest month of the year contained plenty of notable developments for the insolvency and restructuring profession. The big news was towards the end of the month, when the Government published its amended legislation on connected sales in pre-pack administrations - read our press comment here.
The original draft legislation published in October introduced the role of the "Evaluator", a third party called upon to provide an independent opinion as to the value offered to creditors by the sale of all (or a substantial part of) a company in administration's business or assets to a connected party. Under the draft regulations, an individual will be qualified to act as an Evaluator if "...the individual believes that they have the requisite knowledge and experience to provide the report". We are very concerned that under this criterion, unqualified and inappropriate opinion providers will actually be deemed to be qualified, simply by dint of their assertion only. As well as undermining the entire point of these reforms, this approach risks bringing pre-packs and the wider regulatory framework into disrepute. The amended legislation sets out that the Evaluator needs to hold Professional Indemnity insurance - something we called for, but which we see as a bare minimum.
Our concern is that the amended regulations will fall short of their implicit aim of improving confidence among the wider business community, while the 'outsourcing' to the market of the responsibility for ensuring that the Evaluator is a fit and proper person for the role is an unhelpful step. We have voiced these concerns to the Government, and will strive to make sure that the profession's views are considered and taken into account. The amended legislation is due to come into effect on 30 April, and R3's Technical team has set out a more detailed explanation of the regulations here (members only).
Also in February, we wrote to the Chancellor to set out what the insolvency and restructuring profession would like to see in the March Budget - this post sets out our wishlist, with three measures which will help to prevent a rough landing for companies (and the jobs they support) as support schemes unwind. With business rescue, especially for formerly-healthy companies which were viable before the pandemic hit their business model, likely to be a key theme in 2021, the Government has a large part to play in ensuring that the profession can rescue as many jobs and businesses as possible.
The All-Party Parliamentary Group on Fair Business Banking, a group of MPs and peers with an interest in how the corporate banking system functions, has been conducting an inquiry into how SMEs are treated by the financial system, focusing on the regulation of corporate insolvency. R3, on behalf of the insolvency and restructuring profession, submitted a response to the inquiry, setting out how the profession is regulated, and what we hope will be included in the forthcoming official Government consultation on insolvency regulation. Our submission can be read here.
On the topic of consultations, we also responded to the Insolvency Service's consultation on how Debt Relief Orders operate, and whether the thresholds for debts, assets, and surplus income should be increased. Our response is here, and our post on the DRO consultation sums up our views.
In the news - pre-packs and business rescue
In February, R3 was mentioned in a Times article about pre-packs, and in a FT podcast about the need for small business owners to seek advice about their finances as soon as problems rear their heads - not months down the line.
Our comments on the England and Wales quarterly insolvency statistics for Q4 of last year (released at the end of January) were picked up by the regional and trade press in early February, in outlets including the Oxford Mail and Accountancy Age, while our comments on the monthly insolvency statistics for January were featured in the Lancashire Evening Post and The Business Magazine, among others.
Following on from the joint R3/INSOL Europe/Fraud Advisory Panel Fraud Conference in early February, R3 provided a background briefing on how the profession investigates fraudsters and recovers assets for creditors to a reporter from the Times. With fraud levels predicted to rise in the aftermath of the pandemic, we expect that this is another topic which will come to the fore this year, and we look forward to highlighting the important work carried out by the profession to the media and to other stakeholders.
R3 members can provide advice on a range of business and personal finance issues. To find an R3 member who can help you, click below.