Government’s insolvency polices risk harm to vulnerable businesses

The government risks harming the ability of regional businesses to compete if it neglects its long-mooted business rescue reform plans during Brexit preparations, the Midlands branch of insolvency and restructuring trade body R3 has said.

The warning comes after plans to introduce the government’s year-old corporate insolvency framework reform proposals – or any other corporate governance reforms – were left out of the Queen’s Speech.

R3 Midlands chairman Chris Radford, a partner at law firm Gateley in Birmingham, said: “R3 has long argued that action to update the UK’s restructuring framework is needed to ensure it remains an international insolvency and restructuring hub after its departure from the European Union.

“With no mention being made of it in this year’s slimmed down Queen’s Speech, a question mark has been placed over whether any business rescue reforms will take place in the next two years.”

Originally put forward in May last year, the government’s plans included proposals to give business directors a ‘last chance’ protection from creditors in order to turn their business around before a formal insolvency procedure became necessary.

Reforms to ensure struggling businesses receive vital supplies from utility companies, and the introduction of a new court-based restructuring procedure, similar to the US’s Chapter 11 bankruptcy proceedings, were also included.

“The UK has one of the world’s best restructuring frameworks, which helps to attract both businesses and investment to the UK by ensuring companies’ financial difficulties can be resolved quickly and effectively,” added Mr Radford.

“Unfortunately, Brexit risks creating barriers to cross-border insolvency and restructuring work if the latter doesn’t get due care and attention, while other countries, including EU members, are improving their restructuring frameworks.

“Reform is clearly required to stay ahead of the competition, especially with so much emphasis being placed on British businesses tackling new export markets. However, there’s now a clear risk that it’s been pushed back down the political agenda.”

He said R3 believed both the government and opposition parties should back the reforms with immediate effect, as getting them onto the statute books showed the UK remained open for business.