By Jennifer Payne (University of Oxford – Faculty of Law)
In the UK, a number of different mechanisms exist which can be used to restructure the debt of viable but financially distressed companies. This paper assesses the debt restructuring mechanisms currently available to companies in English law and considers whether reform is needed. In particular, the paper analyses the reform proposals put forward by the UK Insolvency Service in July 2016, which recommended: (i) the introduction of an option to cramdown whole classes of creditors using a single restructuring mechanism (something which can only be accessed at present using a scheme of arrangement combined with administration); (ii) the introduction of a restructuring moratorium akin to that which is attached to administration at present, together with a new ability for companies to prevent creditors with “essential contracts” from terminating them on the basis of insolvency alone; and (iii) the introduction of provisions designed to facilitate debtor-in-possession financing, something notably absent from the current UK regime. These reforms will need to be introduced with skill and care in order to ensure that the potential benefit they can bring to financially distressed businesses is balanced appropriately with the constraints that they impose on existing creditors’ rights. The aim of the Insolvency Service’s proposals is laudable, and it is argued that reform of the UK regime is needed. In particular, the introduction of a restructuring moratorium and a cramdown facility would be beneficial. Making these changes would provide English law with a stronger and more effective debt restructuring procedure. Furthermore, such changes are required if the UK wants to remain competitive in a global market.
The full article is available here.