The consultation ran between May and July and looked at four broad areas. These were: introducing a moratorium for distressed businesses to benefit from protection against legal action while considering their options for rescue; widening the definition of essential supplies; developing a new ‘restructuring plan’ would enable (for the first time in the UK) a ‘cram down’ of classes of dissenting creditors; and increasing the availability of rescue finance.

The Insolvency Service says two thirds (67%) of respondents agreed in principle that the introduction of a pre-insolvency temporary moratorium would facilitate business rescue. A similar proportion saw filing to court to obtain a moratorium as the most efficient way in which a business could gain relief from creditor action, but there was widespread concern that a full court hearing could involve costs and delay, at a time in a company’s life cycle when speed is crucial.

A common view – both among those who supported the moratorium and those who opposed it – was that safeguards for creditors needed to be strengthened.

Respondents had mixed views on the proposal to suspend director liability, and government is further considering the costs and benefits of suspending liability for wrongful trading during the moratorium period. In response to stakeholder concerns, government is also considering whether creditors should have a general right to apply to court during the moratorium if they think that their interests have been unfairly harmed.

However, the majority of respondents (76%) who commented on this issue disagreed with the proposals for the length, extension and cessation of the moratorium as outlined in the consultation document. Most thought that it should be shorter than three months, citing difficulties with funding a lengthy moratorium period, and suggesting that a shorter period would reduce the risk of abuse. The most common length suggested was 21 days.

As regards essential supplies, there was support for the broad objective of helping businesses to continue trading through the restructuring process. Over half of the respondents who commented on whether the proposal would bring about more business rescues thought that it would do so. However, a number of respondents stipulated that some suppliers should be carved out, with several stating that the provision of finance and of financial services should be excluded from the proposals. It was also suggested that suppliers should be able to request a personal guarantee from the company’s directors.

More than two thirds (69%) of respondents did not agree that the proposals as drafted offered sufficient safeguards for suppliers. A number of respondents commented on the additional burden that the proposals may place on the courts, and questioned whether the courts would have the requisite resources to deal with the potential increased workload.

The Insolvency Service says there was agreement that a restructuring plan which could be made binding in the face of opposition by a minority of creditors would be a valuable addition to the insolvency framework.

Analysis shows 41% of the 68 respondents who commented on this issue were in support of a new restructuring plan operating as a standalone procedure, rather than as an extension of an existing procedure (e.g. a CVA). They suggested that this would promote flexibility and allow a wider range of companies to benefit from the plan. The respondents who disagreed and felt that the restructuring plan should operate within the existing CVA framework made up 22% of the replies. A number of respondents commented that the procedure should not be time-limited to 12 months, and that it should instead be flexible in length.

Over half (61%) of respondents agreed with the principle that a court-approved ‘cram down’ should be possible in some circumstances. Many respondents agreed with the suggestion that creditors should be grouped in court approved classes. The proposed voting requirements (at least 75% of creditors by value and more than 50% of each remaining class by number) were generally felt to be suitable.

While 40% of respondents agreed with the proposal that there should be a minimum liquidation value test for determining the fairness of a plan which is being crammed down onto dissenting classes, there was widespread agreement that determining a valuation was challenging.

Three quarters of respondents to the consultation (73%) who commented on the rescue finance proposals were against the idea. Several respondents commented to the effect that a lack of rescue finance rarely prevents business rescue, and that as long as a business is truly viable, there is no shortage of funding available.

They reported the existing framework does permit rescue finance, and there is currently a market for rescue financing. Respondents were concerned that any changes made to the order of priority would have a negative impact on the lending environment by increasing the cost of borrowing.

The Insolvency Service said it would continue to consult with stakeholders on the issues raised by the consultation, and will be refining the proposals going forward.

Summary of Responses: A Review of the Corporate Insolvency Framework is here.