On 21 June 2022, the Insolvency Service published its interim report on the Corporate Insolvency and Governance Act 2020 (“CIGA”), which came into force on 26 June 2020. The report considers the three permanent measures brought in by CIGA, namely:
- The restructuring plan under Part 26A of the Companies Act 2006 (the “Part 26A Plan”);
- A standalone moratorium under Part A1 of the Insolvency Act 1986 (the “Act”) (the “Moratorium”); and
- Restrictions on contractual termination clauses under section 233B of the Act (“ipso facto clauses”).
Part 26A Plan
The Part 26A Plan has been utilised in a number of cases since its inception, and access to a cross-class cram down has been successfully used in situations which would otherwise not be viable by use of the alternative scheme of arrangement. The calibre of the judges presiding over the Part 26A Plans is seen as a real strength, drawing on experiences from use of the scheme of arrangement, which is substantially similar to the Part 26A Plan that previous case law can be drawn upon. However, the Part 26A Plan is viewed as too costly, being described as “phenomenally expensive”, and time-consuming, particularly for SMEs. The cost of challenging a Part 26A Plan is also considered excessive, with access to information for creditors being a problem, hindering the objective of protecting dissenting creditors. The report considers that improvements could be made by simplifying the process, or using standardised forms, and reducing the evidential burden on smaller entities.
While the Moratorium has been successfully used, there are significant concerns that it alters pre-existing priorities in any subsequent insolvency; it is uncertain how any such alteration may operate in relation to specific types of creditor and this alteration is a major reason why some practitioners are not using the Moratorium. There are also concerns that there are too many limitations and exemptions to the use of the Moratorium, which is preventing many companies in the mid-market, and larger companies, from being able to apply for it – the use of a Moratorium is seen as being available only in “a very unique set of circumstances”. Relaxing the access criteria may greatly assist here.
Ipso facto clauses
The restrictions on the use of ipso facto clauses are considered a positive addition to the powers available to insolvency practitioners and companies which have entered a formal insolvency procedure, and the certainty the measure brings to relations with suppliers is likely to save time and fees, however there is a lack of evidence at this stage as to the practical operation of these provisions.
Restructuring plans are phenomenally expensive
Originally Published 23 June 2022
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