Restructuring plans are, however, still not being widely used enough in the small to medium-sized enterprise (SME) market, according to the report. It said that courts and stakeholders could be “more pragmatic” about the documentation required for simpler cases, which could be dealt with in a single hearing by the Insolvency and Companies Court (ICC), rather than the High Court. The report also suggested the development of standardized forms or a template restructuring plan similar to those used for company voluntary arrangements.
The Insolvency Service also said the costs of challenging a restructuring plan hindered protection for dissenting creditors. It added that valuation evidence was often seen as excessively costly and suggested that it might be possible for a “single joint independent expert” to be appointed by the court to lower the burden on stakeholders involved in the process. Reviewers also called for new rules to be introduced to ensure greater transparency and more disclosure options, after some stakeholders complained of not having adequate access to information.
Steven Cotee of Pinsent Masons said “more should be done” to encourage the use of restructuring plans in the mid-market, following “the successful implementation of a plan in the case of Amicus Finance.” In 2021, the UK High Court approved Amicus Finance’s restructuring plan, applying cross-class cram-down powers which allowed the dissenting votes of some of its creditors to be overridden.
Cottee added: “The suggested move towards standardized documentation, a single hearing in front of an ICC judge and the use of a joint expert on valuation evidence would all be positive steps. Such reforms would further promote the use of this powerful tool, which has already been shown to be used effectively to restructure SMEs. “
The report concluded that CIGA’s permanent moratorium measure has been used successfully and is more user-friendly than the smaller companies CVA moratorium, which has since been repeated. Reviewers said that, because the moratorium is a debtor in possession process, the functions of a monitor differ from other insolvency practitioner (IP) roles, adding that the “uncertainty created by this sense of newness” was a possible reason why the measure does not yet been fully engaged with by the IP profession.
Contributors to the report criticized the eligibility criteria for moratoriums, which excludes companies that are party to a capital market arrangement where they have incurred a debt of at least 10 million. The report also raised “significant concerns” that the measure also alters pre-existing priorities in a subsequent insolvency, which may have unintended consequences. Suggested improvements to moratoriums included clarification of the definition of financial services, after some stakeholders expressed confusion over whether debts which arise from hire purchase or conditional leasing should receive a payment holiday.
Reviewers concluded that termination clauses were a “positive addition to the powers available to insolvency practitioners and companies who have entered a formal insolvency procedure”, but said it remains too early to assess whether they meet the Insolvency Service’s policy objectives. The government said it expects all three permanent CIGA measures to be used increasingly now that its pandemic support package for businesses has come to an end.