PBC Business Recovery & Insolvency


Seller beware – the rules are likely to change


Te big reliance of this scheme is what has been referred to as ‘cross-


class cram down’. Try saying that quickly! What this means is classes of creditors may out vote a dissenting class of creditor, provided the dissenting class of creditor will not be worse off than if an alternative insolvency procedure was used. Tis does represent a shift in the bal- ance of power in creditor voting.


As a service provider or supplier, what is your first reaction when you hear your customer is entering into an insolvency process? Anger, frustration, can I recover items supplied or, how do we make good the financial hole that bad debt will create? It is an emotional event but, what if you were


Gary Pettit


Managing Director at PBC Business


Recovery & Insolvency


told your termination clause is no longer enforce- able or you must continue to supply the insolvent customer? On 4 June the Corporate Insolvency and


Governance Bill (the Bill) received its second reading in Parliament. Envisaged to become law by the end of June, it will introduce some temporary provisions (to cover the COVID-19 lockdown) that will have retrospective effect and some permanent law, which is the focus of this editorial. So, let us explore the four key provisions that


are all aimed and restructuring and rescuing a company:


Restructuring scheme This appears to modernise the current scheme of arrangement available under the Companies Act. It is most likely a tool used for complex debt restructuring where there are several classes of creditors. For example, a retail chain where there are suppliers, employees, landlords and finan- cial institutions that are likely to be affected in differing ways.


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Moratorium Tis is the largest part of the Bill and sets out a new provision designed to give an eligible company the opportunity of a short holiday from creditors while it looks at ways to restructure its business. Where a company is not subject to any insolvency proceedings,


the directors can file an application at court for a moratorium, without any notice to creditors. Te moratorium comes into force immediately upon the application being filed at court. So, what does this mean? A moratorium has very similar effects


to administration, whereby creditors cannot enforce any security held, landlords may not exercise their right of forfeiture or peace- able re-entry, and any legal processes may not be commenced or continued. Te initial period will be 20 business days (this maybe increased to


30 business days for small companies). Te directors may extend it for a further 20 business days, or with creditor consent it can be extended for up to 12 months. While it needs an insolvency practitioner involved (to be called,


the Monitor), their position is generally to monitor the company during this period, primarily based upon information provided by the directors. It is envisaged a moratorium will be used as a form of protection while the company considers and/or proposes to enter into a company voluntary arrangement, although it could result in the outcome looking more terminal, whereby liquidation may be the outcome. Any supplier who supplies the company during the moratorium


period must be paid (or payment provided for) otherwise the mor- atorium should be terminated. Once terminated, any unpaid post moratorium creditors will enjoy a ‘super priority’ in the subsequent insolvency procedure. However, that could be small consolation if there are no distributable assets!


ALL THINGS BUSINESS


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