Supply chain · 31 May 2016

Smaller firms at risk from proposed changes to insolvency framework

New insolvency framework proposals offers company owners a 90-day window in which to consider the best way of rescuing their business
A proposed move to a new corporate insolvency framework for struggling UK businesses could have major consequences for the cash flow of creditors and thousands of small firms within supply chains.

Following a recent review of the corporate insolvency framework by the Insolvency Service (IS), chief executive of the Chartered Institute of Credit Management (CICM), Philip King, delivered a stark warning to small business owners that adopting a Chapter 11?-style insolvency framework would leave the system open to abuse.

According to King, the proposed framework similar in style to that in the US would make it almost impossible to distinguish between failing firms that were either good? or bad.

Central to the proposals is the creation of a new moratorium that would provide company owners with a 90-day window in which to consider the best way of rescuing their business whilst free from any enforcement and legal action by creditors. The 90-day moratorium would include the chance of an extension if necessary.

Commenting on the proposals, King said: Viewed positively, this is a 90-day window for a company to work with a supervisor to turn a business around, save jobs, and secure a long-term future.

looked at another way, it is 90 days in which the less scrupulous can fritter away assets whilst being untouchable’, to the serious detriment of creditors and the stability of a supply chain.”

In the government’s forward to the IS consultation, business secretary Sajid Javid said that the proposals went some way towards giving businesses of all sizes the best chances of survival.



Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.