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FOCUS ON… INSOLVENCY CONSULTATIONS |
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The Insolvency Service has issued two consultation papers this summer. The first was announced in this year’s Budget, as reported in CLM 2009 Newsletter Issue 3, and looks at ways of making the rescue procedures of administration and CVA more effective (“Encouraging Company Rescue – a consultation”). The Service hopes that its proposals would encourage more companies to use CVAs, and increase the chances of banks and trade suppliers to lend or extend credit to businesses that can be rescued. Comments are invited by 7 September. The second consultation canvasses opinion on the EC Insolvency Regulation (“Evaluation of Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency Proceedings – Evaluation Questionnaire”). It is an information-gathering exercise, so rather than putting forward proposals for improvement, it asks practitioners and others dealing with the Regulation for their opinion on how well it works, how often it is used, etc. Comments are invited by 29 September. Copies of both consultation papers can be obtained from the Insolvency Service website: httm://www.insolvency.gov.uk/index.htm. Encouraging company rescue Extension of pre-CVA moratorium At the moment, only small companies can benefit from a moratorium while they are seeking approval of a CVA proposal (see CLM ¶9466+). The moratorium protects the company from claims during this time, so that the proposal accurately reflects the company’s assets while it is being considered, allowing the creditors to make a decision based on a stable position. Otherwise, there is a danger that creditors, on learning of the company’s financial difficulties, take aggressive debt recovery measures against the company, depleting its general pot of assets. The Insolvency Service proposes to extend the availability of the pre-CVA moratorium to medium-sized and large companies too (subject to the same exclusions for certain types of company, see CLM ¶9467). Currently, such companies enter into administration if they want a moratorium pending approval of a CVA proposal. Administrations are more expensive than CVAs, so although this may protect the assets from claims, it depletes them to a greater degree than a pre-CVA moratorium would. Many medium-sized and large companies are deterred from using a CVA as a result, and take the administration route instead. The consultation paper includes a second proposal to enable a company to apply to court for a longer moratorium (of an initial period of 42 days, with the option to extend it once to 3 months in total). A moratorium would only be granted if the court was satisfied that the moratorium would be in the creditors’ interests as a whole. The idea behind this proposal is to enable larger companies with more complicated affairs extra time to put their proposal together so they do not have to announce their intention to enter into CVA before they are fully ready to do so. Encouraging lending It can be very difficult for companies in CVA or administration to obtain new finance, or to extend existing arrangements, yet it is vital to their prospects of being rescued successfully. If existing lenders are unwilling to provide rescue finance, the company is only likely to be able to grant security to a new lender with the consent of the existing charge holders and if the company has unsecured assets (or equity in secured assets). Negative pledges (common clauses in security agreements preventing the company from granting further security over its assets without the charge holder’s consent) can make it particularly difficult for companies to obtain new finance. Even if rescue finance can be obtained, the cost of it is often far higher than usual. During administration In administrations, rescue finance is already payable as an expense of the procedure and has priority over existing floating charge holders and unsecured creditors (see CLM ¶8928). The Insolvency Service proposes to further improve the position of lenders who provide finance during administration by: » granting rescue finance “super-priority”, so that it ranks above all other administration expenses; and » enabling the rights of negative pledge holders to be overridden where they are standing in the way of the company obtaining rescue finance. To make it easier for administrators to obtain rescue finance, the consultation paper proposes that they should be able to grant new security against unsecured property or property that is already secured, either as a subordinate charge or as an equal first charge (with the consent of the existing charge holder or the court, if the charge holder refuses consent). New security should only be obtained where the administrator is satisfied that: » it is necessary in order to obtain rescue finance; » the interests of existing charge holders are protected; and » obtaining the rescue finance is in the best interests of the creditors as a whole. The Insolvency Service is also seeking views on whether floating charges and asset-based lending arrangements, such as factoring and invoice discounting, should be able to apply to new assets acquired during the administration. For example, if such a charge or arrangement survives the company entering into administration, book debts arising during the procedure fall within the security. However, if it were limited to assets acquired or book debts arising before the company entered administration, the administrator would be able to negotiate a new charge or arrangement, extend the existing one or use the assets for the benefit of the administration, as appropriate in the circumstances. If the charge holder or other party to the factoring or other agreement felt they were being treated unfairly, they could apply to court. During CVA Rescue finance also falls within the expenses of a CVA (see CLM ¶9549) and can rank above other expenses etc, depending on the terms of the CVA. In addition, directors can offer the company’s or their own personal property as security. The Insolvency Service proposes to give companies in CVA the same powers to grant security for rescue finance as administrators (above). Where existing charge holders are left with a portion of their debt being unsecured, they will be able to vote on the CVA proposal to the extent of their unsecured debt. The question regarding floating charges and asset-based lending arrangements also applies to CVAs. EC Insolvency Regulation The Insolvency Service has also launched a consultation paper on the subject of the EC Insolvency Regulation (see CLM ¶7366+). The purpose of this consultation is to gather views on the Regulation from practitioners and others with experience in practice of it in advance of the European Commission’s study on the subject next year. The EC’s final report is not due until June 2012. The consultation seeks opinions on the Regulation generally, as well as on specific aspects of it, such as the effect of there being no concrete definition of COMI, the relationship between secondary and main proceedings and the publicity requirements of insolvency proceedings under the Regulations. The consultation takes the form of a survey, asking respondents to comment on how often and in what circumstances the Regulation is used and how effective it is in different circumstances. |
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Tax Memo 2009-2010 will be fully revised and updated to reflect law and practice as at the date of Royal Assent to the Finance Act 2009, and includes commentary on the: - New benchmark system for employee subsistence expenses - Restriction of tax relief available on pension contributions made by higher earners and the special annual allowance - Abolition of the Commissioners’ system for tax cases and introduction of the new tribunals - Implementatation of the new harmonised system for tax penalties
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Tax Memo 2009-2010 |
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AVAILABLE IN SEPTEMBER |
