Ailing firms to get three-month breathing space

Small companies on the brink of insolvency will get a three-month breathing space from creditor and enforcement action, under new plans that contractors can have their say on.

Tabled by the Insolvency Service, the ‘moratorium’ would allow any business that is insolvent or near insolvent to put a turnaround plan in place without having to worry about a winding-up petition.

Such a grace period would be extendable, presumably on the grounds that a company’s director might need extra time to finalise the rescue, but it would be overseen at all times by a supervisor.

However, directors would still get to remain in control of their company’s affairs during the three-month period, “with no exposure, subject to safeguards, for personal liability.”

The consultation document adds that the moratorium is being considered as one of four proposals to ensure that insolvency procedures – unchanged since 2004 - remain “fit for purpose.”  

“Whether it’s a kitchen-table start-up or massive multi-national, nobody ever wants to see a company in trouble,” states the foreword. “But, sometimes, insolvency is unavoidable

“And should the worst happen to a business, we have a duty to give it the best possible chance to restructure its debts and return to profitability while protecting its employees and creditors.”

To this end, another proposal (which is also open for input until July) is designed to help businesses continue to trade through any restructuring process it undergoes.

The aim is to make it easier for companies to maintain contracts that are essential for the continuation of the business, thereby safeguarding them from being ‘held hostage’ by key suppliers seeking to profit from the company’s distress.

But it is the moratorium that industry experts have come out in support of; albeit not unreservedly.

"The government’s proposal is positive,” Andrew Tate of insolvency body R3 told City AM. "[But] there are one or two potential sticking points. For example, the proposed moratorium is too long…. [and secondly,] it is important that a moratorium is palatable to creditors."