What Impact Could the Proposed Insolvency Moratorium Have on the Cash Flow of Creditors?
Plans have been announced by the Insolvency service, to introduce a 90-day moratorium on companies nearing insolvency. This three-month period is to allow ailing businesses to produce a turn-around plan with no threat of a winding-up petition from creditors. An article by Insolvency News states that this is a similar model to that used by the US within the Chapter 11 process, and state that for creditors of businesses nearing insolvency, this model is ‘fraught with danger’.
So what are the pros and cons of this proposal and what impact could it have on the cash flow of creditors?:
Pros
- Has the potential to save a business from going insolvent and securing a future
- Helps to rescue jobs within these businesses should the turn-around plan be successful
- By turning the business around, the business will have the ability to pay back more than they would have were they to have become insolvent
Cons
- Creditors put at risk due to non-payment for a further extended period of time
- Philip King, Chief Executive of the Chartered Institute of Credit Management (CICM), has stated both the positive and negative effects this could have stating that it could be a 90-day window to save jobs and secure a future, but that it could also allow for a 90-day period in which ‘the less scrupulous can fritter away assets whilst being ‘untouchable’ to the serious detriment of creditors and the stability of the supply chain’.
The consultation for ways to improve the corporate insolvency framework ran until 6th July 2016 – click here for more details.
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