Struggling companies should be given up to six weeks free from creditor pressure to plan a recovery or rescue, says the North East chairman of insolvency trade body R3.
Neil Harrold said the profession believed a ‘business rescue moratorium’ would help save more companies under severe financial strain, safeguarding jobs and improving returns to creditors.
Under R3’s proposals, creditors would not be able to pursue debts for three weeks, a period that could be doubled with court approval.
Companies would be overseen by a Moratorium Supervisor, who would ensure directors used the time as intended.
“The UK insolvency regime is flexible and effective but it needs a simple moratorium procedure to give companies time to plan when there is a chance of rescuing a business and preventing insolvency,” he said.
“It is too easy for anxious creditors to undermine potential rescues with a winding-up petition.
“As a result, rescue deals are arranged quickly and confidentially, which can leave unsecured creditors, in particular, feeling left out.
“Additionally, faced with losing control of their company when entering an insolvency procedure, directors often wait until it is too late before trying to take decisive action needed to turn their company around.”
Under the proposals, any company could enter a moratorium, including insolvent companies who might otherwise enter an immediate formal insolvency procedure.
The moratorium could be used to put in place plans to restructure a company, negotiate alternative payment terms with creditors, negotiate a Company Voluntary Arrangement, or prepare for an administration or liquidation.
Companies would have to meet any liabilities created during a moratorium and if unable to do so, would have to enter an insolvency proceudure.