Insolvency Support Services directors to speak on New Ethics Code at IPA 2020 Virtual Roadshows

Insolvency Support Services Directors Eileen Maclean and Alison Curry are speaking about the New Ethics Code at the IPA’s 2020 Virtual Roadshows.

For more information and to book your place, click here.

Insolvency profession’s views on the moratorium and restructuring provisions in the Corporate Insolvency and Governance Act 2020

Introduction

Following the introduction of the Corporate Insolvency and Governance Act 2020 (CIGA) on 26 June 2020, Insolvency Support Services undertook research on the insolvency profession’s views of the moratorium and restructuring provisions in the new legislation. This paper provides a summary of the results of our research. To download a copy, click here.

A total of 42 respondents participated in the research. They represent a cross-section of specialist insolvency practitioner (IP) firms as well as accountancy and law firms with insolvency and recovery practices, ranging from small to very large organisations, across the whole of the United Kingdom.

Executive Summary

Use of the Provisions

It is clear that, at the time of our survey, most respondents did not know if they were going to use either of the new rescue procedures (60% Moratorium, 54% Restructuring). Of those who are intending to use the moratorium (31%) and restructuring (20%) provisions, there is a clear difference in the size of company in relation to whom it would apply: Moratorium – large 15%, SME 38%, Any company 46%, compared to Restructuring – large 63%, SME 0%, Any company 38%.

Moratorium Provisions

Proponents of the moratorium agree or strongly agree that its main benefits are (in order): speed and ease of entry, the ability to extend, and the valuable breathing space it will give companies.

Of those not minded to use the moratorium, the main reasons cited are the costs of monitoring being disproportionate to the benefits, and that directors do not consult early enough to get the benefit of a moratorium. The latter is a long-standing complaint in insolvency and reflects the old adage that the sooner someone seeks assistance in relation to their business, the higher the chance of rescue. For the moratorium to be effective therefore, directors need to seek advice early.

The moratorium can only be overseen by an IP, so despite responses, it will be incumbent on us to use the moratorium provisions, or we risk losing the exclusivity of the role to other professionals. However, the cost is going to be an issue, as is the actual remit of the Monitor.

It seems likely that a majority of moratoriums will be extended past the original 20 business days (as anticipated by 66% of respondents). Intuitively this seems right: unless a company can get very quick confirmation from its creditors to it proposals, in whatever form they might take, the vast majority of respondents (88%) think that a second period of 20 business days will be required.

Restructuring Provisions

It is clear that most respondents see the new restructuring tool being used at the higher end of the market. Of the respondents who will not be using the new provisions, 91% stated that it is because their client base is predominantly SME companies and directors. Although the SME market is not precluded from making a court application in terms of the new Part 26A Companies Act provisions, the Insolvency Service shares the view that this is intended for the large company sector. That means only certain firms (advisory and legal) will be assisting companies in this work.

Those intending to use the provisions see the main benefits as the ability to bind dissenting creditors to the plan, and the ability to remove creditors with no economic interest in the company. It will be interesting to watch the market’s response, as well as that of the courts, to the impact these new provisions will have on lenders and suppliers going forward, once the implications are fully understood.

Research Findings: Moratorium Provisions

1. Will you be using the new moratorium provisions?

Three in five (60%) of respondents indicated that they do not know if they will be using the new moratorium provisions, while 31% said that they will be using them, and 10% stated that they will not.


% respondents (%s do not add up to 100% due to rounding)

 

2. To what extent do you agree that the new moratorium provisions are likely to bring the following benefits?

Those respondents who said that they will be using the new moratorium provisions mostly agreed that they bring several benefits, with all respondents agreeing that speed of entry into moratorium is an advantage of the new provisions. However, a small number of respondents did not agree that the provisions will provide ease of entry into moratorium, valuable initial breathing space or the ability to extend as circumstances require.


% respondents (%s do not all add up to 100% due to rounding)

 

3. For what size of company do you anticipate using the new moratorium provisions?

Just under half (46%) of the respondents who said that they will be using the new moratorium provisions anticipate using them for any size of company, while 15% expect to use them mainly for large companies and 38% mainly for SMEs.


% respondents (%s do not add up to 100% due to rounding)

 

4. Why will you not be using the new moratorium provisions?

Those respondents who said that they will not be using the new moratorium provisions cited several reasons, the main ones being the cost of monitoring being disproportionate to the benefits and not being consulted early enough by directors to get the benefit of a moratorium.


% respondents

 

5. Do you think that the initial period of 20 business days will be long enough?

Almost two thirds (66%) of respondents think that the initial period of 20 business days will not be long enough, while just under a quarter (24%) think it will be sufficient, and the remaining 10% do not know.


% respondents

 

6. Do you anticipate that an extension of a further 20 business days will happen in most cases?

The majority (88%) of respondents anticipate that an extension of a further 20 business days will happen in most cases. Only 5% do not expect an extension, and 7% do not know.


% respondents

Research Findings: Restructuring Provisions

7. Will you be using the new restructuring provisions?

Just over half (54%) of respondents indicated that they do not know if they will be using the new restructuring provisions, while 27% said that they will not be using them, and only 20% stated that they will.


% respondents (%s do not add up to 100% due to rounding)

 

8. To what extent do you agree that the new restructuring provisions are likely to bring the following benefits?

Those respondents who said that they will be using the new restructuring provisions mostly agreed that they bring several benefits. The ability to bind dissenting creditors to plan and to remove creditors with no economic interest in the company were seen as benefits by all respondents.

Most respondents also viewed voting thresholds, the ability of the court to sanction the plan not withstanding voting thresholds not being met and the wide scope of restructuring possible as benefits of the new restructuring provisions.

% respondents (%s do not all add up to 100% due to rounding)

 

9. For what size of company do you anticipate using the new restructuring provisions?

Just over three in five (63%) respondents who said that they will be using the new restructuring provisions anticipate using them mainly for large companies, while 38% expect to use them for any size of company and none anticipate using them mainly for SMEs.


% respondents (%s do not add up to 100% due to rounding)

 

10. Why will you not be using the new restructuring provisions?

Those respondents who said that they will not be using the new moratorium provisions cited several reasons, with their client base being predominantly SME companies and directors by far the main one.


% respondents

This article first appeared in the August 2020 edition of RECOVERY News online as well as the Autumn 2020 print edition of RECOVERY and is reproduced with the permission of R3 and GTI Media.

 

Contact Us

If you have any questions about this research or would like to discuss how Insolvency Support Services could support you and your firm in dealing with and using the new legislation, please do not hesitate to contact us.

As well as a recorded webinar, Corporate Insolvency and Governance Act 2020: An Introduction, already available to watch online at a time that is convenient to you, our Moratorium checklist is available now and the supporting document pack will be available in September. Please contact us at enquiries@insolvencysupportservices.com for more information.

 

Moratorium checklist and document pack

The Corporate Insolvency and Governance Act 2020 (“the Act”) came into effect on 26 June 2020, being the UK Government’s response to the impact of coronavirus on business. The Act introduces permanent new solutions for businesses facing financial difficulty including a new moratorium procedure for use pre-CVA or restructuring, or as a standalone opportunity for a company to rectify its financial position.

Our Moratorium Checklist is now available for purchase. Split into six sections, this comprehensive work programme sets out the process for obtaining a moratorium, actions on appointment, monitoring the company’s affairs, termination, extension and exit, conducted under the current coronavirus provisions of the legislation. Requirements are clearly delineated as the responsibility of the monitor or the directors and matters for consideration throughout the moratorium period are set out in detail. As with all of our checklists, it is hyperlinked to the relevant statutory provision or guidance.

The checklist is available now for just £750 plus VAT.
Order now by email at enquiries@insolvencysupportservices.com or by phone on 0845 601 7570 and your checklist will be supplied on receipt of payment.

Our supporting document pack will be released in September, and will retail at just £750 plus VAT. Comprised of pro-forma documents for use by the monitor or the company as applicable, it will be hyperlinked to the checklist. You can pre-order the supporting document pack when purchasing your checklist.

And remember, if you attended our One Hour Series on the Corporate Insolvency and Governance Act 2020, then the cost of the webinar is redeemable against the purchase price of the checklist and document pack to a maximum of five participants. If you haven’t enrolled, and would like to do so, please contact Danielle Kelly on courses@insolvencysupportservices.com. Up to five enrolments will be included in your purchase.

For just £1,500 plus VAT, you can be ready to confidently apply the new moratorium provisions.

Insolvency Support Services obtains Cyber Essentials certification

Insolvency Support Services is pleased to have achieved certification under the Cyber Essentials scheme.

Jointly developed by the UK Government and the cyber security industry, Cyber Essentials helps organisations implement essential levels of protection against cyber attacks, demonstrating that they take cyber security seriously.

Thanks very much to Diddo for their expertise and support in helping us complete the assessment and facilitating the certification process.

What are your views on the new moratorium and restructuring provisions in the Corporate Insolvency and Governance Act?

Insolvency Support Services (ISS) is conducting research among stakeholders in the UK insolvency market on the new moratorium and restructuring provisions in the Corporate Insolvency and Governance Act.

We are gathering views on the likely usage of the provisions and the potential benefits as well as the reasons why they might not be used.

Please take part in the survey by clicking here before 24 July 2020.

If this link does not work for you, please cut and paste this url into your browser: https://www.surveymonkey.co.uk/r/ISSyourview

This survey should take less than five minutes to complete. All responses will be treated confidentially.

All respondents will receive a summary of the findings and be entered into a prize draw for the chance to win a free ISS webinar as well as a £50 voucher for an online retail store of the winner’s choice.

Please note that the survey will be temporarily unavailable from 8.00 am–8.00 pm on 3 July.

If you have any questions, please email enquiries@insolvencysupportservices.com

Webinar – Corporate Insolvency and Governance Act 2020: An Introduction

In our One Hour Series webinar Technical Short: Corporate Insolvency and Governance Act 2020: An Introduction on 17 July we will summarise the changes and how they might be applied by the profession. Click here to book.

Monitor’s fees under the Corporate Insolvency and Governance Act

Alison Curry examines the detail around monitor’s fees in the new moratorium provisions.

The new moratorium process outlined in the Corporate Insolvency and Governance Act has now come into effect, bringing a very welcome 40 or more days’ breathing space for companies while they and their professional advisers consider their restructuring options.

Thanks to campaigning from the profession, in particular R3, the Act has seen some shift from the original proposals first outlined in 2017, not least that the monitors of these moratoria must be licensed insolvency practitioners. Had this not been the case, it could have seriously eroded the vital role that insolvency professionals play in corporate restructuring, and we should be grateful to all those who campaigned.

The perennial issue

We will be constructing document packs and checklists now that the legislation has come into force and rolling out our compliance support and training offering. But as with any new legislation, the devil is invariably in the detail, and some of the detail raises concern, particularly around the perennially thorny issue of IP fees.

The monitor must be an IP and the monitor is expressly stated to be an officer of the court. However, while SIP 9 currently applies to “all forms of proceedings under the Insolvency Act”, it expressly refers to the fees of an insolvency office holder, and a monitor may not fall into that category. SIP 9 could usefully be amended to clarify this ambiguity and the current consultation on the revision of this SIP would be an opportunity to do so.

But even if the monitor’s fees are to be subject to SIP 9, what of their fees for advising the company and forming their opinion, prior to their formal appointment as monitor? Here the position becomes less clear.

Entering the moratorium gives the company a payment holiday from most of its pre-moratorium debts, subject to some exceptions. A key exclusion for obvious reasons is the remuneration and expenses of the monitor. However, the provision goes on to state that “the monitor’s remuneration or expenses does not include remuneration in respect of anything done by a proposed monitor before the moratorium begins”; so it would seem that any pre-appointment charges in relation to formulating the very opinion that kickstarts the moratorium are potentially subject to the payment holiday. IPs will, therefore, need to ensure that their engagement letters are very clear about what exactly the monitor’s fees include.

There are then restrictions on the company in making payments during the moratorium period in respect of pre-moratorium debts which are subject to a holiday, to the greater of £5,000 or 1% of its debts, subject to the monitor giving their permission for higher amounts to be paid. Could this place IPs in a rather conflicted position in giving permission to discharge their own pre-appointment costs?

Super-priority

But what if the monitor’s fees aren’t paid at all? The newly inserted sections 174A and SchB1 para 64A give super-priority to moratorium debts (i.e. those incurred during the moratorium period) and pre-moratorium debts for which no payment holiday is granted (i.e. the monitor’s fees). This super-priority applies in any succeeding winding up or administration proceedings commenced in the 12 weeks following the end of the moratorium. Further, a new s4A provides that any proposal for or modification to a CVA under which both the moratorium debts and the pre-moratorium debts for which the company did not have a payment holiday are to be paid other than in full is prohibited. So, it seems that the monitor will be paid ahead of any subsequently appointed office holder and IPs will need to check that there is not a prior monitor ranking ahead of them when taking a new instruction.

It appears that the only parties capable of challenging the monitor’s fees are a subsequently appointed liquidator or administrator and that challenge involves an application to court, which could be costly, and assumes an alternative IP in the succeeding role. Additionally, while the moratorium is in force, only the directors can instigate the winding up of the company or seek to appoint an administrator, so they get to choose their IP if that rescue proves impossible.

So, what if the monitor, on the evidence now available to them, changes their view about the viability of the company and recommends that the directors take steps to place it into liquidation or administration? The newly revised Ethics Code contains enhanced provisions around the potential conflicts presented by sequential appointments, but by no means precludes them. Nor does the new legislation.

Therefore, might we see the birth of the post-moratorium pre-pack, once it has become evident that the business, rather than the company can be saved, thereby justifying a shift from moratorium into administration? In some cases, no doubt this would be entirely justified, but the lack of external oversight in respect of fees may create the potential for abuse (both actual and perceived).

An amendment to the bill proposing the insertion of a new paragraph 74A into Schedule B1, requiring the use of the pre-pack pool in all pre-pack scenarios was withdrawn at committee stage, so it would seem that the pre-pack will survive unscathed into the new era of moratoria.  Much will rest on the shoulders of IPs to use these new tools responsibly, and in the longer term, more will rest on the shoulders of regulators to ensure that they do so.

What are your views on the new moratorium and restructuring provisions?

Click here to take part in our short survey. It should take less than five minutes to complete. As well as receiving a summary of the findings, you will be entered into a prize draw for the chance to win a free ISS webinar and a £50 voucher to an online retail store. The survey will end on 24 June 2020. Please note that the survey will be temporarily unavailable from 8.00 am–8.00 pm on 3 July.

First published in the June 2020 edition of RECOVERY NEWS and reproduced with the permission of R3 and GTI Media.

Webinar – Corporate Insolvency and Governance Act 2020: An Introduction

In our One Hour Series webinar Technical Short: Corporate Insolvency and Governance Act 2020: An Introduction on 17 July we will summarise the changes and how they might be applied by the profession. Click here to book.

Alison Curry elected to R3’s National Council

We are delighted to announce that Insolvency Support Services director Alison Curry has been elected to the National Council of insolvency and restructuring trade body R3. The Council, comprising senior professionals from across the profession, plays a vital role in the strategic decision-making process of R3.

With Alison’s election confirmed at R3’s AGM on Friday 24 April, fellow Insolvency Support Services director Eileen Maclean commented: “We are very proud indeed that Alison has been elected to serve in this important position with R3. She brings an exceptional wealth and depth of insolvency expertise and practical experience to the role.”

Having joined Insolvency Support Services in 2018, Alison provides a range of compliance, training, outsourcing and practice support services to clients throughout the UK. An engaging public speaker and trainer, she specialises in the practical application of insolvency law and regulation and the drafting of regulatory guidance. Prior to joining Insolvency Support Services, Alison was Head of Regulatory Standards & Support at the Insolvency Practitioners Association.

Alison said: “As a career insolvency practitioner who believes passionately in the value of the work the profession undertakes and the need to support that work, I’m excited to be joining R3’s National Council. R3 will play an essential role in supporting the insolvency profession as we help businesses cope with the effects of the COVID-19 pandemic. As an R3 Council member, I am looking forward in particular to bringing my first-hand experience of both the demands of working in a small practice and the machinery of the regulatory arena to the role.”

Insolvency in the time of coronavirus

Eileen Maclean outlines the challenges of COVID-19 for insolvency practitioners.

We are used to dealing with emergencies with no notice – we are IPs after all – but the speed of response demanded from the business community by the outbreak of coronavirus was unprecedented. Vast numbers of us now work from home and are finding new and innovative ways to manage our cases and deal with our clients and contacts. At the heart of the solution is IT – but IT cannot replace every aspect of an IP’s role. In this month’s article I consider some of the challenges for IPs in this time of coronavirus and how we can help you.

New appointments and AML risks

One of the first things we were asked was can we still take appointments where we have not met the directors in person? We think the answer is yes – but there are a couple of things to note. Firstly, you need to be aware of the AML risk since you are not meeting the directors in person. Adjust your AML policies and procedures accordingly and record this new channel and the risks it poses, if this is a new process for your business. If you are using an online verification tool, the risk is lessened, but make sure that you keep identification under review and check that you are not inadvertently enabling money laundering, the burial of some dubious pre-insolvency activity or giving advice without fully understanding the problems facing the business. Secondly, only if you or your agent must, and it is safe to do so having taken the necessary precautions in line with government advice, visit the premises, and make sure that they are subject to appropriate security measures, in line with your insurer’s requirements.

Advice to directors

The wrongful trading provisions may have been suspended for a period of three months as an eye-catching policy response to the difficulties of running a company in these unprecedented times, but directors are not completely off the hook. Misfeasance provisions in terms of section 212 remain firmly in place, and nothing alters your responsibility to quantify the director’s loan account, examine inter-company or related party transactions or transactions at undervalue or in preference. Your advice to directors at this time needs to reflect that. Unfit conduct is not going to go away, and you need to remind them your obligation to review and investigate will continue. We have a new checklist Investigations and CDDA and two supporting online sessions: Pre-appointment advice to directors and SIP2 and Investigations, which you can purchase separately or as a package with a discount.

Moratorium and other rescue provisions

At the time of writing, we have yet to see a draft of the UK government’s moratorium and rescue proposals although we expect them to build on the BEIS response to the Insolvency and Corporate Governance consultation. That contains proposals for a new moratorium to assist business rescue, the prohibition of termination clauses on the grounds of insolvency and a new restructuring process that will allow cross cram-down onto secured and/or unsecured creditors. As always, the devil will be in the detail, and the speed at which it is likely to be introduced. In the meantime the profession, supported by the courts, finds faster, inventive approaches to retail and high street casualties with a ‘light touch’ administration appointment in Debenhams.

Reputational risk

The sun will set in 2022 on the single regulator provisions introduced by SBEE Act 2015 following a review of the regulatory landscape. There is no indication at the moment what the government response to the formal consultation might have been pre-pandemic, but our approach in these dramatic times may well dictate whether we retain the privilege of self-regulation in the future.

The revised Insolvency Ethics Code was published at the start of the year and comes into effect on 1 May 2020. You can get to grips with the changes in our online session. Insolvency and IPs have not been far from the headlines in recent years, and we are headlining again now, big time. Our approach, our fees and our conduct are centre-stage of press, public and government scrutiny and one of our biggest challenges in these times is managing and protecting our collective professional reputation. The introduction of our new ethics code is uncannily well-timed.

COVID-19 our response

And therefore, to assist you in these times, we have prepared a free-to-view video: COVID-19: An Insolvency Practitioner’s Risk and Response. It covers dealing with employees – your and your cases’ workforce – risks and challenges presented by working from home, contributions management, protecting estate funds and assets, and meeting your statutory obligations.

Preferential status for HMRC

Following my February article on the return of preferential status for HMRC, due originally to commence on 6 April 2020, it is marginally gratifying to see the provision has been delayed until late 2020. We can’t predict at this stage HMRC’s overall exposure to lost revenue (but we know it will be a lot) or what their approach will be to collections (but we can guess) and in light of the widespread expected increase in numbers of insolvencies, whether they will be geared up to exercise their role as preferential creditor in a significantly higher number of insolvencies than a benign economic environment would produce (we can only hope).

Conclusion

We are always here to assist and protect your business. Please get in touch if we can help.

In the meantime, stay safe in these challenging times.

First published in the April 2020 edition of RECOVERY NEWS and reproduced with the permission of R3 and GTI Media.

Brand new Investigation and CDDA Checklist

We now have an Investigation and CDDA checklist, intended for use by IPs and their staff dealing with investigations into company director conduct, recovery and disqualification.  Applying across insolvent liquidation, administration and receivership, the checklist reflects current insolvency and CDDA legislation and all statutory references are hyperlinked to the relevant sections.  

The checklist retails for £500 (ex VAT).

There are two supporting online sessions: Pre-appointment advice to directors and SIP2 and Investigations, which normally retail for £50 (ex VAT) per participant.  One single use registration of each online session will be included with the purchase of the checklist for a limited period of time.  For two or more registrations to each session, please speak to us directly.

Coronavirus: An IP’s Risk and Response

Our job at Insolvency Support Services is to support your business. We have produced this short, free to view online presentation to assist and protect your practice as you deal with the exceptional circumstances of COVID-19.  We’ve considered the risks for your insolvency practice, and suggested practical responses and strategies for addressing these.

We have also set out below how we can assist you to meet these challenges. Please contact us at enquries@insolvencysupportservices.com if we can help in any way.

Documentation and Policies

Revised policies and protocols for contribution management

Working from home policy

Data Processing Impact Assessment

Data Protection policies and registers
Online Learning

AML2020 update

Compliance Awareness Online Learning covering: GDPR, AML, Ethics and Vulnerability – ideal introductions to staff new to insolvency or looking for a refresher of these subjects

Social Media on Appointment

Foundations in Insolvency
Outsourcing

Case Reviews

Case Closure

Case Progression and annual reports

Current Guidance  

For reference, following are links to the latest guidance from AiB and IPA.


AiB – COVID-19 – Contingency Arrangements

IPA – Insolvency Guidance Papers: Control of cases

Covid-19: Important information for IPA members