Faculty questions working of insolvency "moratorium" proposals
Practical issues arising from proposals for a new corporate insolvency framework have been raised by the Faculty of Advocates in its response to a UK Government consultation.
The Insolvency Service is seeking views on whether legislative change would improve the UK corporate insolvency regime and “provide a better environment to achieve the successful rescue of a viable business.”
One proposal is a new, three-month moratorium to give companies a chance to consider the best way to rescue the business while free from enforcement and legal action.
While refraining from commenting on issues of policy, Faculty points out that there have been few, if any, moratoria in Scotland under sched A1 to the Insolvency Act 1986. It continues: “In addition, it is not clear to us what are to be the statutory grounds on which a creditor would have the right to apply to the court for an order terminating the moratorium… the grounds must be stated more precisely than the criteria which are mentioned in paragraph 7.12 [of the consultation], namely ‘where [the creditors’] collateral or interests are not sufficiently protected’."
The response goes on to examine the practicality of some of the criteria for bringing a challenge, and question how quickly the courts, "even the Court of Session", would be able to dispose of any challenge by a creditor.
There are "significant practical issues" arising from a proposal that creditors be allowed to request information, and in special consideration for "essential contracts".
Faculty makes a number of other comments and suggestions regarding how the proposals might work.