Government proposes new tools to help companies in financial distress - Resolve Group UK

Government proposes new tools to help companies in financial distress

Resolve Group UK

Introducing new tools

The UK Government has recently announced its intention to introduce new tools to improve rescue opportunities for financially-distressed companies and emphasise the obligations of directors.

These follow consultations in both 2016 and 2018 when respondents voted in favour of the recommendations aimed at strengthening both the insolvency regime and that of corporate governance.

The reforms outlined are intended to ensure that more companies can be rescued or restructured, that stewardship and transparency are strengthened in large companies, and that returns to creditors in insolvency are increase

This proposed strengthening of the insolvency regime includes:

  • The addition of a period of time (moratorium) to give viable companies the chance to restructure or seek further investment. This breathing space from creditors aims to give the distressed company time to put in place a plan to deal with debts and try to avoid insolvency.
  • A new restructuring plan procedure to provide an alternative option for financially-distressed companies to restructure their debts.
  • New rules to prevent suppliers from terminating contracts solely as a result of a company entering insolvency process to give extra support to the ailing business as appropriate.
  • The Insolvency Service will be given new powers to investigate directors of dissolved companies and the ability to disqualify directors of holding companies who unreasonably sell insolvent subsidiaries. Directors will now be required to provide explanations to shareholders about proposed dividends, pension pay-outs and investments.

On the same day, the Government introduced measures to improve corporate governance that aim to ensure that directors act in the best interest of the business, and better protect pensions, small suppliers and employees who lose out when companies go into administration.

Unsecured creditors will be better supported as an inflationary increase will be added to the cap placed on the ring‐fenced pot of finance available to unsecured creditors, which has remained unchanged at a maximum of £600,000 since its introduction in 2003.

The Government intends these changes to strengthen the UK’s Industrial Strategy by making Britain a more equitable and safe environment in which to both start and do business, and so increase investment and employment opportunities in the future.

Read more news

Go back