Restructuring and Insolvency – what to expect in 2023

The flurry of economic forecasts over the last few months may reach slightly different conclusions but none give much scope for encouragement.  With no sign of the pressure points of high inflation, interest rates and energy prices abating, we look at three things the coming year might bring from an insolvency perspective.

Directors’ duties

Directors’ duties have twice come under the spotlight of the Supreme Court in recent months, in the cases of BTI 2014 LLV v Sequana SA and Stanford International Bank Ltd v HSBC.  In a nutshell, the Court confirmed the existence of a common law duty for directors to have regard to the interests of the company’s creditors when it is insolvent or bordering on insolvency.  These interests must be given appropriate weight depending on the actual, developing financial position of the company.  Even within the Supreme Court over the course of the two decisions there was some disagreement as to the precise extent and applicability of the duty and it is likely that the practical effect of the duty will be subject to further argument in subsequent claims.

Bounce Back Loan Scheme

£47.4bn was lent to 1.56 million enterprises under the Bounce Back Loan Scheme as part of the Covid support package to SMEs and micro-businesses.  The loans have been subject to allegations of fraud, which is estimated to prevent repayment of £17bn of the loans.   Examples of this include applying the loan monies for personal rather than business use and exaggerating or misrepresenting the business’ financial position.  There have already been multiple arrests and the Insolvency Service has imposed various bankruptcy limitations and director disqualifications.  These actions are expected to continue, in parallel with which the HMRC has recently launched an investigation.  The major bank are also gearing up to take action to recover misappropriated loans, although the economics of taking action to recover loans of £2,000-£50,000 may be challenging.

CIGA review

The pandemic also saw the introduction of the Corporate Insolvency and Governance Act, which brought about various reforms to insolvency law.  The Insolvency Service has recently reported on the mixed success of these measures.  Further tweaks may be expected to increase their effectiveness.

The Insolvency Service is continuing its review of the creditors’ voluntary liquidation process.  Issues under consideration include liquidators’ remuneration and the adequacy of notice periods given to creditors.  More news on this is likely in 2023.