In this blog, we highlight changes to law, practice and procedure that will or could impact the restructuring insolvency market this year – covering important changes that should be on your radar – as well as providing an update on those changes that were expected but which might be delayed beyond 2020.

Brexit – will it be business as usual for R&I practitioners?

This week sees the UK finally leave Europe.

Transitional arrangements are in place until 31 December 2020 – unless extended. The Conservative Government has made it clear that it is not their intention to extend the transitional period (and there is legislation which prohibits that happening) however an extension may be required if negotiations about the future relationship between the UK and EU stall. The last opportunity to extend expires on 30 June 2020.

For R&I practitioners the position in respect of cross-border insolvencies remains largely the same.

From 31 January 2020 until the end of the transition period the UK will be treated as if it were still an EU Member State and the Recast Insolvency Regulation (EU) 2015/848 will apply. Accordingly, insolvency proceedings opened before the end of the transition period will still benefit from cross-border recognition.

There is no indication that the UNICTRAL new model law on enterprise group insolvency (approved last year) will be adopted by the UK. Although whether this will change following Brexit and the end of the transition period if the UK no longer benefits from cross-border recognition, there is a possibility.

Pension Schemes Bill – a big impact in 2020?

One to put on the watch list for those involved in providing pre-insolvency advice to directors of companies which have a defined benefit pension scheme.

The proposed legislation introduces new offences that carry criminal sanction and new moral hazard powers, that as currently drafted, could dis-incentivise responsible directors and other stakeholders from pursuing a turnaround plan.

In respect of the proposed new offences, whilst there is a defence of reasonable excuse, a director is unlikely to take much comfort from that when faced with the risk of imprisonment.   IPs should also note that they are not protected from the risk of criminal sanction unless formally appointed.

If no amendments are made to the Bill before it becomes law these new offences may have a detrimental effect on the recovery market.

We are writing a more detailed blog on the Pension Schemes Bill but for now this is one piece of legislation that R&I professionals should note.

What will happen to referrals to the pre-pack pool?

The power to prohibit or impose conditions on pre-pack sales to connected parties expires on 26 May 2020. Referrals to the pre-pack pool are currently voluntary. Following the Government evaluating the impact of the voluntary measures, its report confirming its findings is expected imminently.

It is widely thought that it will become mandatory to refer pre-pack sales to connected parties to the pre-pack pool.   Either way, we will know the position before 26 May.

HMRC

The Loan charge

The Government will implement legislation this year to enable (in certain circumstances) HMRC to refund those persons who have made payments in settlement of the loan charge.

We have previously explored the impact of the changes to the loan charge on directors and insolvency practitioners in this blog.

Preferential Status

The proposal to reinstatement Crown preference was not included in the Queen’s Speech. Will the Government drop this proposal entirely? Probably not, but we will have to wait until the Budget on 11 March 2020 and for the Finance Bill to find out more.

R3 and others have called for transitional arrangements and/or a cap on HMRC’s claims but if the legislation remains unchanged then we could see a spike in insolvencies as companies move overnight from a lender’s “good book” to their “bad” if HMRC is reinstated as a secondary preferential creditor in April.

We have written a number of blogs on this topic highlighting the potential impact on R&I and lenders and wait anxiously to see if concerns about this measure have been taken on board.

Tax avoidance

Another changes that will impact on advice to directors, and which is also expected to be included in the Finance Act 2020 are the new measures that are designed to tackle phoenixism. Those new powers will enable HMRC to serve joint liability notices on directors (and others) making directors jointly and severally liable for a company’s tax liabilities.

Changes in court practice and procedure

CE-filing

You would be forgiven for forgetting that electronically filing documents at court using CE-filing is still a pilot scheme running until 6 April 2020, given that it is now compulsory for professional users of the Business and Property Courts to use it.   Will this be withdrawn? This is unlikely given the investment into the scheme and the fact that it has been extended previously, but a date to note nonetheless.

E-filing notices of intention to appoint and notices of appointment of administrators

We have seen an increasing number of cases where the Court has been asked to determine whether administrators have been validly appointed. Our blog last week considered the latest decision in Keyworker Homes.

In a process that requires certainty, e-filing has perhaps caused more uncertainty about whether an administrator has been validly appointed than was foreseen as well as causing a number of practical headaches for those using it. Practitioners hope that there will be a change to the legislation, and we may see this in 2020. The most recent guidance from the Chancellor (published yesterday) certainly suggests that there will be and sets out a new approach for dealing with notices of appointment filed out of court hours.

Witness evidence

The report from the Witness Evidence Working Group published in December recommended a number of actions that largely focus on ensuring compliance with the Civil Procedure Rules and

(if implemented) may require practitioners to take additional steps to certify compliance. Something to note, because the recommendations seek to encourage the Courts to apply costs sanctions for non-compliance!

Company Voluntary Arrangements– the continued evolution of the CVA

CVAs dominated the headlines in 2019 and with reports of the retail market still struggling, may continue to do so in 2020.

Depending on the outcome of the Regis CVA challenge (which is still continuing) this may require drafters to re-think the terms of future proposals to avoid challenge. For example, the Court previously indicated following the Debenhams CVA challenge that a CVA which reduced rent below market value was unfair.

Airline Insolvency legislation

Following the failure of Monarch in 2017 the Government proposed a package of changes aimed at repatriating passengers quickly and efficiently. The recommendations could see the cost of repatriation being picked up by airlines and passengers.

With Flybe being the latest airline to hit the press with financial woes, the proposed changes may well make it to the legislative books this year. However, whether passengers will have to pick up the cost of the proposals remains to be seen – this recommendation was not included in the Queen’s Speech in December.

Our previous blogs have considered the impact of airline failures and protecting your holiday.

Cryptocurrency – can we expect new legislation?

The UK Jurisdiction Taskforce published a legal statement at the end of last year on the status of cryptocurrencies and smart contracts. Following which the Law Commission is considering whether any legislation is required, however no timetable has been given.

With the rise in cryptoassets and use of smart contracts legislation may become pressing if uncertainty remains.

We have previously written about dealing with cryptocurrencies in insolvency and will shortly be publishing an update reflecting upon the conclusions in the legal statement.

Corporate Insolvency Reforms – will we see these in 2020?

Remember those. A hangover from 2018 when the Government announced a package of reforms to the UK’s insolvency and corporate governance framework (click here for a reminder).

There has been little said, about these proposals since initial consultation, other than the Insolvency Service announced that they were continuing to develop them.

Given the pressure of Brexit and a new Government the parliamentary timetable has been otherwise engaged, so the chances of the reforms become law this year are slim. Probably something for 2021 (or beyond).

That said, it wouldn’t take up much parliamentary time to increase the prescribed part!

Breathing space for individuals

The Treasury said that it would lay new regulations to implement a 60 day statutory breathing space for individuals in debt giving them time to seek professional help. There are no signs of the regulation but the Insolvency Service have funding to progress this in 2020. Realistically it is unlikely to become law this year.

Further afield

From this Summer expect a new restructuring tool in the Netherlands, similar to the English scheme of arrangements and new insolvency laws are expected in Guernsey in early 2020 providing a more modern, efficient and robust regime.

Horizon scanning

Climate change is high on the political agenda. The priority to cut UK emissions and prepare for changing climate could provide challenges (or opportunity) for UK businesses as they need to prepare for and meet new standards.  Our previous blogs have touched on some of these issues – see here and here.

Conclusion

As can be seen there are a number of expected changes to law, practice and procedure in 2020, although for many the ultimate impact depends on the detail in the legislation.