Key results from a survey on the new rescue provisions
16 September 2020
Following the introduction of the Corporate Insolvency and Governance Act 2020 on 26 June 2020, Insolvency Support Services undertook research on the insolvency profession’s views of the moratorium and restructuring provisions in the new legislation. Here we examine the main results of that research. A summary of the full results is also available via the link at the bottom of this article.
A representative sample of respondents participated in the research. They represent a cross-section of specialist insolvency practitioner (IP) firms as well as accountancy and law firms with insolvency and recovery practices, ranging from small to very large organisations, across the whole of the United Kingdom.
Use of the provisions
Will you be using the new moratorium provisions?
It is clear that, at the time of our survey, the majority of respondents did not know if they were going to use either of the new rescue procedures (60% indicated they did not know if they would use the moratorium provisions and 54% said likewise about the restructuring provisions). Of those who are intending to use the moratorium (31%) and restructuring (20%) provisions, there is a clear difference in the size of company in relation to whom it would apply: moratorium – for large companies 15%, for SMEs 38%, and for any size of company 46%, compared to restructuring – for large companies 63%, for SMEs 0%, and for any size of company 38%.
To what extent do you agree that the new moratorium provisions are likely to bring the following benefits?
Proponents of the moratorium agree or strongly agree that its main benefits are (in order): speed and ease of entry into moratorium, the ability to extend as circumstances require and the valuable breathing space it will give companies.
Of those not minded to use the moratorium provisions, the main reasons cited are the costs of monitoring being disproportionate to the benefits and that directors do not consult early enough to get the benefit of a moratorium. The latter is a long-standing complaint in insolvency and reflects the old adage that the sooner someone seeks assistance in relation to their business, the higher the chance of rescue. For the moratorium to be effective therefore, directors need to seek advice early.
The moratorium can only be overseen by an IP so, despite responses, it will be incumbent on us to use the moratorium provisions or risk losing the exclusivity of the role to other professionals. However, the cost is going to be an issue, as is the actual remit of the monitor.
It seems likely that a majority of moratoriums will be extended past the original 20 business days (as anticipated by 66% of respondents). Intuitively this seems right: unless a company can get very quick confirmation from its creditors to its proposals, in whatever form they might take, the vast majority of respondents (88%) think that a second period of 20 business days will be required.
Why will you not be using the new restructuring provisions?
It is clear that most respondents see the new restructuring tool being used at the higher end of the market. Of the respondents who will not be using the new provisions, 91% stated that it is because their client base is predominantly SME companies and directors. Although the SME market is not precluded from making a court application in terms of the new part 26A Companies Act provisions, the Insolvency Service shares the view that this is intended for the large company sector. That means only certain firms (advisory and legal) will be assisting companies in this work.
Those intending to use the restructuring provisions see the main benefits as the ability to bind dissenting creditors to the plan and the ability to remove creditors with no economic interest in the company. Most respondents also viewed voting thresholds, the ability of the court to sanction the plan not withstanding voting thresholds not being met and the wide scope of restructuring possible as benefits of the new restructuring provisions.
It will be interesting to watch the market’s response, as well as that of the courts, to the impact these new provisions will have on lenders and suppliers going forward, once the implications are fully understood.
For a full summary of the research findings, please click here
If you have any questions about this research or would like to discuss how Insolvency Support Services could support you and your firm in dealing with and using the new legislation, please do not hesitate to contact Eileen Maclean via email.
As well as a recorded webinar, Corporate Insolvency and Governance Act 2020: An Introduction, already available to watch online at a time that is convenient to you, our Moratorium checklist is available now and the supporting document pack will be available in September.
If you would like to receive regular updates on insolvency matters from Insolvency Support Services, please click here.
Eileen Maclean is a director of Insolvency Support Services.