Government to mull over what to do next for insolvency rules, including what respite to give companies in trouble
Government is to take a long, hard look at the UK's insolvency rules, as a consultation on the topic closes tomorrow.
The consultation, which is reviewing the current corporate insolvency framework, was launched on 25 May and is being jointly overseen by The Insolvency Service and the Department for Business, Innovation and Skills.
Among the proposals on the table are; creating a moratorium period to give businesses time to think how best to rescue their business without fear of legal action from creditors, introducing measures to help businesses continue trading throughout the restructuring period, developing more flexible restructuring plans and exploring options for rescue financing.
When the consultation was announced, insolvency trade body R3 welcomed the proposal for a moratorium.
Read More: Three policies alone could cost UK businesses £29bn by 2020
However, Andrew Tate, president of R3, added: "It's very important that any moratorium is practical. It should be short, to make it easier to fund and to limit the burden on creditors, and there should be a licensed insolvency practitioner in place to look after creditors’ interests."
An earlier proposal from R3 called for a 21-day moratorium, which could be extended by up to 42 days with court approval. The government consultation is considering a period closer to three months in length.
"[Twenty-one days] should be long enough for a company to put in place a rescue plan and for it to bring creditors on board with what it is trying to do," Tate continued. "A longer moratorium increases the risk of harm to creditors and could allow companies in the moratorium to ‘drift’ rather than sort their problems out."
Read more: CVAs are just being used as a "get out of jail free" card
The foreword of the government's consultation document, penned by business secretary Sajid Javid, explained that one of the key drivers for the review was to give business owners more confidence that they would be able to restructure if they were going through a rough patch.
"Whether it’s a kitchen-table start-up or massive multi-national, nobody ever wants to see a company in trouble," Javid wrote "But, sometimes, insolvency is unavoidable.
"And should the worst happen to a business, we have a duty to give it the best possible chance to restructure its debts and return to profitability while protecting its employees and creditors."
Insolvency has been a particularly hot topic since high street retailer BHS was placed into administration in April. It was subsequently announced that the company would need to be wound down after a buyer could not be secured.