Consultation ends on Insolvency Service moratorium plans

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The Insolvency Service (IS) consultation on proposed corporate insolvency regime changes has now closed, having found significant support for a pre-insolvency moratorium.

Launched in May last year the consultation paper explored a number of proposals, including a period of protection against legal action for distressed companies investigating rescue options, better known as a moratorium.

Also included in the document were proposals to widen the definition of ‘essential supplies’, develop radical new ‘restructuring plans’ and increase the availability of finance for businesses that required rescuing.

Of those that replied to the consultation, more than two thirds agreed that a temporary moratorium would help to facilitate business rescue.

They also believe it should be court-approved, despite the likely counterproductive effect of the costs and procedural delays of formalising an agreement.

Most agreed that a period of less than three months was fair to help business recover, with 21 days being seen as the ideal period.

Almost all of the respondents felt that strengthened creditor safeguards were essential during the moratorium.

Opinion was divided on whether new restructuring plans should operate as a standalone procedure, rather than extensions or modifications of existing insolvency arrangements.

Respondents also felt that restructuring plans should include the power to bind a minority of dissenting creditors – providing a valuable addition to the insolvency process.

The rescue finance proposals put forward by the IS, which included priority administration expense reordering, duplication of company property loan security and existing charge holder safeguards, were opposed by around three quarters of respondents.

Many felt that the changes would increase borrowing costs and stifle lending prospects for solvent businesses.

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