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31-01-2017

Our senior partner and head of insolvency, Frances Coulson, peers into the crystal ball to make 10 predictions about the insolvency and restructuring market in the year ahead.

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  1. New Insolvency Rules 2016 (IR 2016) will pose challenges 
    The new rules coming into effect in April finally bring in some of the heralded parts of the 2015 insolvency reform legislation. We may see challenges around the deemed consent provisions abolishing the requirements to hold meetings. I think they will lead to abuse. We already have the costs estimating and it remains to be seen whether creditors will be more active in this regard as they get used to the regime.
  2. The litigation funding model will settle down and could benefit creditors 
    Expect new and different entrants to the market, hopefully bringing prices of funding and after-the-event (ATE) insurance down and returns to creditors up. IPs will need to consider the benefits of the different options, including simple conditional fee agreements (CFAs) from solicitors, or even paying them. We are already seeing even solicitors seeking to buy claims. Whether this is for the benefit of creditors will no doubt become clear, but not soon. In some cases, we are seeing the costs of funding prevent settlement. In some cases, lawyers are being offered portfolio funding which seems to push the cost of practice funding to cases. The LASPO review may look at these areas.
  3. There will be more litigation around tax avoidance and bank behaviour 
    We will see a further swell of cases surrounding bank behaviour and insolvencies not limited to the RBS Global Restructuring Group activities and outside the further redress scheme. HMRC action around tax avoidance cases will rise. As accelerated payment notices work through a tribunal, we may see more insolvencies as a result. HMRC’s new powers might give cause for concern to professional advisers involved in tax planning schemes.
  4. We could see a single regulator but my preference is for an element of competition 
    The Insolvency Service certainly wants a single regulator and would like to take on the role. My concern is that the Insolvency Service is a competitor - an unregulated one at that. If it is to take work on, it needs to be as regulated as the profession and train staff to similar standards. It will no doubt divide itself notionally between the IS regulator and the Official Receiver office-holders My own preference is for the Institute of Chartered Accountants in England and Wales (ICAEW) to cater for the larger accountancy firms and the Insolvency Practitioners Association (IPA) to take the pure insolvency practitioners. I think an element of competition maintains the balance between effective regulation and over-zealous box ticking (which costs creditors and practitioners alike).
  5. New charges will affect the personal insolvency market 
    The OR’s new charges will bed in and will affect the personal insolvency market, as well as debtors who could achieve annulment. I do not think it is the right way to fill a self-perpetuating hole in the Insolvency Service finances. How to address the unfair competition posed by the OR retaining cases (sometimes against majority creditor wishes) whilst acting unregulated is something which will exercise us this year as well as their fee structure.
  6. ‘Brexit means Brexit’ means we just don’t know 
    I have given up going to talks on Brexit, all of which conclude that the answer is ‘we don’t know’ and ‘Brexit means Brexit’ (unless the courts say otherwise). The European Insolvency Regulation is the most important thing for insolvency lawyers. The loss of would likely cause greater cost and inbuilt delay. It could potentially affect England and Wales as a forum of choice for effective Schemes and restructuring. Still, we managed before and no doubt will again. Cancelling automatic recognition of UK insolvency practitioners’ powers across the EU would, however, be a great loss.
  7. The Insolvency Market 
    There are already firms exiting the market altogether but I think we will be busy. I anticipate more of a rapprochement between the insolvency and turnaround elements of the professions. The European Commission’s new directive on corporate insolvency reform has been welcomed as likely to improve business rescue procedures across Europe, but we don’t know how long the directive will apply in the UK (re Brexit). There is already a good focus on restructuring and early intervention as part of the insolvency regime in the UK, and an EU-wide framework for this type of work would make it much easier to handle cross-border cases - but will we be on the sidelines?
  8. A ban on pre-packs will continue to hover – unfairly in my view 
    The government has given itself until 2020 to look at this. There has been a lot of noise around pre-packs, which in my view is undeserved given that, in its final review of SIP 16 compliance before handing over responsibility to the RPBs, the Insolvency Service reported that 96% of all SIP 16 statements were fully compliant or contained only minor breaches between January and October 2015, and only 1% of all complaints received by the Complaints Gateway related to SIP 16 statements/pre-pack administrations. The pool, as a sop to those who complained so vociferously, doesn’t seem to me to have added much.
  9. Lehman litigation will rumble on 
    It appears the Lehman litigation will take us through to 2022. Life wouldn’t be the same without it.
  10. Plus ça change… 
    The real challenges will be the same as they always are, getting the work in, doing it and getting paid. Some things never change. The doing it bit is the easy part. However, I think the litigation funding market and the uncertainty caused by Brexit both present challenges, but also opportunities (as in any era of uncertainty).

Frances Coulson (fcoulson@moonbeever.com)
January 2017

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained

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