Restructuring and insolvency predictions for 2021
23 February 2021
At the start of 2020, we considered what changes the UK restructuring and insolvency market might expect to see during the year, but no one could sensibly have predicted the significant and far reaching impact of Covid-19.
In this article, we look back at 2020 and look forward to what the UK restructuring market can expect in 2021 considering the new insolvency laws, expected rule changes, pre-pack sales and practice and procedural points.
Insolvency laws – all change in 2020, what about 2021?
The Corporate Insolvency and Governance Act 2020 (CIGA) introduced new insolvency tools, in the form of the new restructuring plan and moratorium, and while we have seen the likes of Virgin Atlantic implement a plan, only a handful of businesses have taken advantage of the new moratorium.
Recently, the court sanctioned the first ever UK cross-class cram down in relation to the plan for DeepOcean and in 2021, as the market becomes more familiar with this new tool and as the case law develops, we may see the restructuring plan being used more widely and extending into the SME market.
Temporary measures – further extension?
Temporary measures (such as restrictions on presenting winding-up petitions and suspension of wrongful trading rules) are due to expire at the end of March (April for the relaxation of wrongful trading rules). For many companies they will also have to face up to discharging the VAT that they were allowed to defer from March 2020. However, an abrupt end to the measures could see a wave of insolvencies.
Ministers recognise the potential cliff-edge and in debates in the House of Lords reveal that ‘work is ongoing to develop measures to address what we are aware is a potential issue’ – what this means, we will have to wait and see. Perhaps a further extension of the temporary measures or a tapered approach. It is difficult to predict but a further extension will, for some companies, simply mean kicking the insolvency can further down the road.
New insolvency rules
One thing we can expect in early 2021 are new insolvency rules.
CIGA introduced temporary rules to implement the new procedures but permanent rules are expected shortly although as yet, we don’t know the date for those.
One issue the new rules might clarify is the time when an e-filed notice of appointment of administrators takes effect, particularly one filed outside of court hours, hopefully addressing the flood of cases considering this issue.
Cases such as Re Keyworker Homes (North West) Ltd, concluded that a notice of appointment could be e-filed and take effect even when filed outside normal court opening hours, but even in early 2020 the courts were still having to address issues created by e-filing notices of appointment.
However, the issues created by the decision in Keyworker Homes were addressed in the Temporary Insolvency Practice Direction (TIPD).
The current TIPD sets out the time and date that the court will apply to a notice of appointment filed out of hours, however the practice direction is due to expire on 31 March 2021 and therefore unless extended (or the issue addressed in the new rules), we could see the courts having to grapple with this question again in 2021.
That said, it is doubtful that a rule change or clarification would eliminate all challenges to appointment. A failure to abide by procedural requirements will likely still require judicial consideration of the validity of an appointment.
Changes to pre-packs
The proposed pre-pack regulations will introduce a mandatory requirement for an administrator to obtain creditor approval or an independent written opinion before proceeding with a pre-pack sale to a connected party.
While we have no hint of a date when this will become mandatory, other than when parliamentary time allows, the new regulations will have to be enacted by June 2021 when the government’s power to make the regulations expires.
Practice and procedure
The TIPD introduced a number of temporary procedures and changes to address Covid-19 challenges including the option to swear NOIs and NOAs remotely. Given that restrictions on meeting people could be in place beyond 31 March when the temporary measures expire, an extension to the TIPD may be required to address the need to work remotely, although at this point, there is no mention that it will be.
Further, we have seen the introduction of remote and hybrid hearings in the TIPD. The ability to manage court processes remotely has been helpful, aided by CE-filing, which although still only a pilot scheme will no doubt be extended beyond 6 April 2021 when the pilot scheme expires.
Finally, we have seen temporary processes for presenting and pursuing a winding-up petition set out in the insolvency practice direction relating to CIGA. This introduced the ‘Coronavirus Test’. The temporary processes remain in place until 31 March 2020 but, given the government is aware of the potential cliff edge, will this be extended to avoid an influx of winding-up petitions?
Statements of Insolvency Practice (SIPS)
SIP 3.2 – company voluntary arrangements, SIP 7 – presentation of financial information in insolvency proceedings and SIP 9 – payments to insolvency office-holders and their associates from an estate (England) will all be updated with effect from 1 April 2021.
IPs should ensure they are aware of the changes ahead of then, and for other professionals it is worth noting the changes in SIP 3.2 in relation to the provision of information and the nominee’s role.
This article first appeared on the Restructuring Global View blog. Visit the blog in future for part two covering the Pensions Schemes Act, potential changes to directors’ duties, HMRC and cross-border insolvencies.