In the final part of our predictions for 2021 for the UK insolvency market we look at pensions, the National Security and Investment Bill and cross border matters.
Pension Schemes Act 2021 – caution for insolvency professionals
The Pensions Schemes Act made it into the legislative books recently having been on the watch list for some time. Why is this of concern to those involved in restructuring? Because it carries (or will do) criminal liability and civil fines of up to £1million. Our previous blog explains how the legislation captures not just culpable directors but those typically involved in a restructuring including IPs, advisors and distressed lenders.
Although the Act is in force, the Regulations that bring the Pensions Regulator’s powers to pursue criminal sanction are still awaited. The Pensions Minister has indicated that it might be autumn before these are in force, but those involved in restructurings should consider how to manage the risk in the lead up, given that the new sanctions can apply to “a series of transactions”.
National Security and Investment Bill – impact on insolvency transactions
The same question arises here, why is this of concern to those involved in restructuring? Because (a) if an insolvency sale is of a type captured by the new law it will delay completion of a sale by up to 30 business days until the buyer obtains clearance; and (b) if clearance is not sought there is a risk of the transaction being declared void and the IP being handed back what they thought they had sold.
The new law aims to protect national security, and although it will have limited application to every day insolvency sales (a sale of assets for example), the provisions will require mandatory notification in specific sectors if certain trigger events apply.
So whilst not directly impacting IPs, because they don’t have to obtain clearance themselves, IPs need to be aware when an insolvency transaction will be caught to ensure that the buyer obtains the requisite clearance and the time required to obtain that is factored into the transaction. For further reading see here.
Given that when the Bill becomes law it will be retrospective in effect, IPs should ensure that they are aware of how this new law impacts current transactions.
This year we expect an updated SIP 16 (pre-packs) and SIP 3.2 (CVAs). SIP 3.2 will apply from 1 April 2021 and although we do not know when the revised SIP 16 might be released, this is likely to coincide with the new pre-pack regulations which are expected to come into effect from 30 April.
EU cross border insolvencies
Following the end of the Brexit transition period (31 December 2020), English IPs will have to grapple with the additional procedural steps, costs and potential delays that recovering assets or managing business interests in the EU might entail.
Whilst any appointments made before 31 December 2020 continue to benefit from automatic recognition in EU member states, proceedings opened after that date will not, and IPs will have to make an application for recognition to the foreign court.
The UK Insolvency service have provided helpful guidance (see here) but there are uncertainties about recognition which we expect will become clearer during 2021 once we see how foreign courts respond to recognition applications.
For example, there remains questions over whether an out of court administration appointment will be recognised, and whether proceedings based on the ‘establishment’ test will be recognised.
Read our quick guide for an overview of how an English administrator can obtain recognition of their appointment in France, Germany, Italy and Spain
We saw favourable changes across most jurisdictions in 2020 in relation to the financial support available to businesses, and countries changing or amending their insolvency laws to address the COVID-19 pandemic.
With jurisdictions such as Germany and the Netherlands both introducing restructuring plans into their tool kits, it will be interesting to see how the UK fairs in the insolvency world rankings and whether we will see an increase in forum shopping.
See here for our guide outlining how some countries have revamped their insolvency and restructuring laws, and here for a summary of the Government financial support still available in Europe and the Middle East.