The Increasing Role Taken by the UK Government in Corporate Restructuring and Insolvencies

The UK government has traditionally played an important role when companies of a certain size and stature have found themselves in financial difficulty. The government aims to balance the interests of businesses, employees, creditors, and the wider economy. This role is not directly operational, meaning the government doesn't typically manage restructuring processes itself, but rather establishes the legal and regulatory framework within which they occur. However, over the past few years, the number of government touchpoints have increased significantly which has seen the authorities take a more hands on approach. Advisors and principals need to understand how to react and deal with this more proactive approach.

Legal and Regulatory Framework

The government's primary contribution is establishing the legal framework governing insolvency and restructuring. Key legislation includes the Insolvency Act 1986, the Company Directors Disqualification Act 1986, and the Enterprise Act 2002. These acts define various insolvency procedures, such as administration, liquidation, company voluntary arrangements (CVAs), and schemes of arrangement, outlining the processes, responsibilities of involved parties and the legal ramifications. The government regularly reviews and updates this legislation to ensure its effectiveness and relevance to the evolving business landscape. Recent reforms have focused on enhancing rescue options for struggling businesses, promoting transparency, and strengthening protection for specific creditors.

Regulatory Bodies

The government oversees regulatory bodies crucial to the restructuring landscape. The Insolvency Service, an executive agency of the Department for Business and Trade, investigates corporate insolvencies, disqualifies unfit directors, and manages the Official Receiver function. The Financial Conduct Authority (FCA) regulates financial institutions, playing a significant role in restructuring processes involving these entities. The Competition and Markets Authority (CMA) can also be involved if restructuring activities raise competition concerns.

Intervention in Specific Cases

While generally promoting a market-led approach, the government has started to intervene more directly in specific restructuring cases, particularly since the introduction of the Corporate Insolvency and Governance Act (CIGA) 2020, which provides several tools to help companies in financial distress. The government’s involvement is seen as a way to stabilise the economy and protect jobs during challenging times. This intervention has taken several forms:

• Financial Support: The government may provide financial assistance to struggling businesses deemed strategically important, potentially through loans, guarantees, or equity injections. This support can facilitate restructuring efforts by providing the necessary liquidity and stability.

• Nationalisation or Part-Nationalisation: In exceptional circumstances, the government might temporarily nationalise or acquire a stake in a failing company to prevent its collapse and safeguard critical services or jobs. This is a last resort measure, typically employed when a company's failure poses a systemic risk to the economy.

• Facilitating Restructuring Deals: The government can act as a facilitator, bringing together stakeholders (e.g., creditors, potential buyers) to negotiate restructuring solutions. This role can be particularly important in complex restructurings involving multiple parties with conflicting interests.

• Policy Adjustments: The government can adjust policies, such as tax regulations or employment laws, to create a more conducive environment for restructuring. For example, temporary tax relief or flexible working arrangements could support businesses undergoing restructuring.

Responding to the Government’s More Proactive Approach

The government's role in corporate restructuring is subject to ongoing debate and is not without its challenges. During Covid, the government provided significant financial support measures to help companies survive. Post-Covid, HMRC has been much more active with winding up orders and strict with Time to Pay arrangements as it seeks to restore the country’s finances.

Balancing the need for efficient restructuring processes with the protection of stakeholder interests remains a key challenge for the UK government and one that needs to emphasise support for the struggling small and medium sized businesses that underpin our economy.

With the above in mind, there are a few key things that advisors should do to deal with this more proactive approach by the government. By adopting these strategies, restructuring advisors can effectively navigate the evolving landscape of corporate restructuring in the UK:

• Stay informed and compliant: Advisors must stay up to date and informed on the latest regulations and government initiatives in relation to corporate restructuring. For instance, understanding new tools like the moratorium and restructuring plan and how they differ from more traditional methods.

• Proactive engagement: Advisors should encourage clients to take a proactive approach to financial distress, identifying potential issues early and intervening to prevent insolvency. Notably, it is also key to engage with HMRC as early as possible if you foresee difficulties in paying on time.

• Holistic restructuring strategies: Implementing comprehensive restructuring strategies that go beyond financial reorganisation, including operational and strategic improvements as well as stakeholder management, is key to ensuring a sustainable turnaround.

• Leverage government support: Utilise government support schemes and incentives designed to aid restructuring efforts.

• Enhanced communication: Maintain transparent communication with all stakeholders including creditors, employees and shareholders. This helps build trust and ensure smooth implementation of restructuring plans.

Andrew Pepper, Special Situations Partner, Evelyn Partners