UK insolvency reforms could prove counterproductive

Author: Olly Jackson | Published: 13 Mar 2019

Changes to the UK insolvency rules are 'potentially dangerous’ and could be counterproductive, according to industry sources speaking to IFLR.

The planned changes, following a public consultation in August 2018, are expected to be shelved following the results of the latest Brexit vote, which went against the government, as all focus will now be placed on securing a deal with the EU.

However, the imminent changes could result in a moratorium process that is too short, and introductions of claims against directors that could be counterproductive. The proposed new legal obligation on the board of a holding company to act in the best interests of its struggling subsidiary's stakeholders (i.e. the subsidiary's creditors) risks placing the holding company's directors in an impossible conflict position. 

The sale of a struggling subsidiary may be in the interests of the holding company to whom the holding company's directors owe their principal...