The government has this morning announced that it is consulting on a proposal to introduce a moratorium for struggling businesses. The moratorium would give company directors more time to turn a business around and negotiate with their creditors.
The R3 has already published its own proposal for a business rescue moratorium. The trade body explained that the moratorium would need to be practical. It proposes a 21-day long moratorium, extendable to 42 days with court approval and insolvency practitioner to oversee proceedings. This time period should be sufficient to put a rescue plan in place and to bring creditors on board, without the business losing focus.
The government has provided four proposals:
Create a new moratorium – the creation of a new moratorium should provide companies with an opportunity to consider the best approach for rescuing the business whilst being free from enforcement and legal action by creditors. The proposed moratorium would last for 3 months.
Restructuring process – Organising a restructuring process should make it easier for companies to maintain contracts that are essential for the continuation of the business.
Flexible restructuring plan – A rescue plan would help to bind secured and unsecured creditors and introduce a ‘cram-down’ mechanism.
Explore rescue financing – Rescue finance is permitted as an expense in an administration procedure and the government is seeking to understand the extent to which the law should be reformed to further develop the market for rescue finance.
With the changes to the corporate debt market, the government is looking to enable more corporate rescues of viable businesses and to ensure the insolvency regime delivers the best outcomes. Additionally, the government wants to promote entrepreneurship, investment and employment by providing opportunities and low-cost procedures should a company liquidation be required.