New rules make it easier for companies to trade out of trouble

Insolvency trade body R3 has welcomed the government’s announcement that it is proposing a three-month moratorium from creditor action for insolvent or near-insolvent companies.

Andrew Tate, president of R3, said the move would give struggling businesses “breathing space” from creditor pressure.

“A moratorium could give company directors more time to turn a business around and negotiate with their creditors. R3 has already published its own proposal for a business rescue moratorium and is pleased to see the government is following suit.

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“It’s very important that any moratorium is practical. It should be short, to make it easier to fund and to limit the burden on creditors, and there should be a licensed insolvency practitioner in place to look after creditors’ interests.”

Tate said that the government must also avoid repeating the mistakes of existing moratorium options and ensure the oversight role is proportionate.

“R3’s own recommendation is for a 21 day long moratorium, extendable to 42 days with court approval and insolvency practitioner oversight,” said. “This should be long enough for a company to put in place a rescue plan and for it to bring creditors on board with what it is trying to do. A longer moratorium increases the risk of harm to creditors and could allow companies in the moratorium to ‘drift’ rather than sort their problems out.”

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