On August 26, 2018, the UK government issued its response to its consultation on insolvency and corporate governance. The consultation sought views on how the risk of company failure could be reduced by improving the corporate governance and insolvency framework. The response summarized the views and comments received during the consultation, and sets out a number of proposals that will have significant implications for English companies and their creditors and investors. At the heart of the proposals is a desire to ensure there are a range of transparent rescue procedures that allow companies to restructure or seek new investment, in order to give them a greater chance of survival, while also ensuring fair and efficient procedures to protect the interests of creditors. The proposals mean that the government will seek measures that:
1. Ensure greater accountability of directors in group companies when selling subsidiaries in distress:
- This measure will apply to large subsidiary companies.
- Directors of the holding company who do not give due consideration to the interests of stakeholders of a financially distressed subsidiary when it is sold may be subject to disqualification action if that subsidiary enters insolvent liquidation or insolvent administration within 12 months of sale.
- Directors of the holding company will need to provide evidence that they had a reasonable belief at the time of the sale that the sale would likely deliver a no-worse outcome for the stakeholders of the subsidiary than putting it into a formal insolvency process in order to avoid disqualification.
2. Enhance existing recovery powers of insolvency practitioners in relation to value extraction schemes: Continue Reading