Business rescue reforms placed in doubt by Queen’s Speech

The government must not neglect its business rescue reform plans as it prepares for Brexit, says insolvency and restructuring trade body, R3.

Plans to introduce the government’s year-old reform proposals – or any other corporate governance reforms – appeared to be absent from the Queen’s Speech. As this will be the only Queen’s Speech for two years, this could put the UK economy on a less competitive footing as the country prepares for Brexit.

R3 has long argued that action to update the UK’s restructuring framework is needed to ensure the UK remains an international insolvency and restructuring hub post-Brexit.

The plans, originally put forward in May 2016, included proposals to give business directors last chance protection from creditors in order to turn their business around before an insolvency procedure, reforms to ensure struggling businesses receive vital supplies, and the introduction of a new court-based restructuring procedure, similar to the US’s Chapter 11 bankruptcy proceedings.

Adrian Hyde, R3’s President, says: “The UK has one of the world’s best insolvency and restructuring frameworks. It attracts both businesses and investment to the UK by ensuring businesses’ financial difficulties can be resolved quickly and effectively. Unfortunately, Brexit risks creating barriers to cross-border insolvency and restructuring work, while other countries, including EU members and places like Singapore, are improving their restructuring frameworks. We need to reform to stay ahead of the competition.”

Adrian adds: “We welcomed the government’s reforms when they were first proposed, and with some alterations they could make an incredibly valuable addition to the UK’s business landscape. They could make business rescues more viable and will be attractive to international companies and investors.”

“The challenges of minority government and the pressure that Brexit will put on the legislative timetable threaten to delay these much-needed changes. Both the government and opposition parties should back the reforms and get them onto the statute books so the UK can show it is still open for business.”

Adrian Hyde adds: “The business rescue reforms are a key change, but they are not the only ones the insolvency and restructuring profession wants to see. Reform is also needed, for example, to make it easier to intervene earlier to help businesses with pension scheme deficits, but it’s not clear from the Queen’s Speech whether proposals from this spring’s pension consultation still feature in the government’s plans.”

Other reforms

Prior to the election, R3 also called on the government to:

• Ensure that insolvency appointments and relevant court judgments continue to be recognised across Europe as part of any Brexit deal
• Encourage financially distressed individuals and businesses to seek early professional advice
• Take action to resolve the conflict between employment and insolvency law
• Take action regarding concerns about the insolvency practitioner bonding market.

Adrian Hyde says: “By threatening agreements that make it easy to resolve insolvencies and restructurings across EU borders, Brexit presents a huge challenge to the insolvency and restructuring profession – and by extension, creditors and struggling businesses. The government must ensure Brexit does not create unhelpful barriers to dealing with cross-border insolvencies.

“Beyond Brexit, there are issues in the insolvency and restructuring landscape that the government and opposition will need to address urgently. It’s important that Brexit doesn’t become a distraction.