The long awaited reforms to the world of insolvency have been ushered in with the passing of the Corporate Insolvency and Governance Act.
The new rules gained Royal Ascent on June 26th, after a protracted passage through parliament, not helped by the delays caused by Covid-19.
Under the Act of Parliament new corporate restructuring tools and temporary easements rules have come in to give distressed businesses the breathing space they need to get advice and seek a rescue.
Instead of the plug being pulled on day one of a collapse, firms will have a 20 day period of protection in which they can seek professional advice and engineer a rescue package.
In a statement the Government said: “One of its key provisions is the introduction of the new role of a Monitor to oversee the corporate moratorium it introduces – an extendable 20 working day period giving businesses protection from creditor action while they seek professional restructuring advice. A monitor must be a licenced insolvency practitioner and the Insolvency Service has provided guidance on their role and responsibilities. The Act also extends the suspension of termination clauses when a company enters into an insolvency procedure and introduces a new restructuring plan that has the ability to bind creditors to it.”
Off the back of the Covid-19 pandemic provisions were introduced to help struggling firms to delay payments to creditors if they had been severely hit by the lock down and a zero cash flow. That protection ended today (June 30), but has been extended under the new laws to September.
The Government’s statement said: “The Act also provides temporary relief until 30 September 2020 from being subject to a winding up petition and from wrongful trading provisions where a business can demonstrate its difficulties arise from trading conditions arising from the COVID-19 pandemic.”
Ian Carrotte of ICSM Credit welcomed the new rules as it gives firms a chance to find a way out of insolvency without having to make a snap decision late at night on the eve of collapse.
“The legislators have taken a page out of American law on insolvency,” he said, “as there are elements of their Chapter 11 procedure which gives a kind of cooling off period while an insolvent company seeks a rescue plan. When a company collapses, an administrator is put in place and the main creditors like the banks and VAT are paid off – but there may be nothing for unsecured creditors. Under the new law because there is a better chance the embattled firm can survive – perhaps in a smaller but more profitable form – then creditors may then find some form of payment is possible over a longer period of time.”
He said that the law could be used almost immeditiately in the case of the the Byron Burger chain. The company has filed a notice to appoint administrators, as it tries to protect the restaurant chain from creditors while it seeks a rescue deal.
Insiders believe Byron Burger may already have set up a pre-pack deal if they go under with a chunk of business bought out with some of the 54 outlets closed. The BBC reported today: “Sources confirmed that the Byron Burger board still remain hopeful that it can be sold as a ‘going concern’. The chain is believed to be in talks with three potential buyers, who could buy the firm or parts of it, in a so-called “pre-pack” administration deal. If the chain does go formally into administration in the coming days, KPMG is set to deal with the process.”
About ICSM Credit
ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel – while at the moment there’s a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach – ask for details from Paul.
For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.
To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com
For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk