Why insolvency law & practice is always a work in progress
August 15, 2023
The Insolvency Service has just published its three-year review of the implementation of the latest piece of UK insolvency legislation, the Corporate Insolvency and Governance Act 2020 (CIGA), noting that while its provisions were broadly welcomed initially, the take up of the its procedures have been modest at best. By the end of June 2023, there had only been 45 Moratoriums and 21 Restructuring Plans approved.
Various potential improvements to CIGA have been identified, but this highlights a constant problem with the UK’s and every other country’s insolvency and restructuring regime. The law and even the most imaginative interpretation of it by the courts will always be cumbersome by comparison with the nimble and ever-changing world of commerce.
After all, the core of our insolvency framework dates from the mid-1980s, twenty years before the iPhone was launched, the same time as Microsoft first released Windows and decades before the internet became the bedrock of most commercial activity. The concept of cyberspace was limited to Hollywood sci-fi blockbusters.
Ongoing dialogue with insolvency practitioners (IPs)
The good news is that there are functioning channels of communication between the Insolvency Service, IPs and their various representative bodies. IPs are problem solvers by instinct and experience, as well as being far from shrinking violets. They will always be keen to share and discuss aspects of their work, where they feel that the insolvency regime is a hindrance. Mostly, the Insolvency Service is a good listener and knows its territory well enough to sort the wheat from the chaff as the profession feeds back to it on its experiences.
Two recent new areas of concern illustrate the problems and the process well.
Cryptocurrencies
A topical area where the law found itself a long way behind the curve has been the murky world of cryptocurrencies. As the first insolvency cases began to emerge, one simple but fundamental issue cropped up at once. As a totally new asset class, it turned out that there was no statutory or judicial authority on whether cryptocurrency could be classified as property, an aspect that affects the rights attaching to it and the enforcement and recovery action that can or cannot be taken.
Other aspects of cryptocurrencies and in particular the exchanges on which they are ‘stored’ and through which they are traded left IPs dealing with the first cases in the sector struggling not just with the law in general and extra-territorial aspects, but how to apply the often very specific provisions of the insolvency legislation to these challenging cases.
Fortunately, IPs tend not to be a secretive bunch and almost straight away, those involved were sharing their experiences and their problems with each other through seminars and conference presentations, whilst at the same time working with the Insolvency Service to find acceptable workarounds where the relevant rules were found to be unworkable.
The Ukraine war and sanctions
More and more IPs have found themselves caught up in the complexities of the various sanctions regimes in place around the world following Russia’s invasion of Ukraine in February 2022. Some of the difficulties encountered were predictable, such as needing to make sure that assets were not sold to nor distributions on cases made to sanctioned individuals or organisations. Accessing bank accounts and other assets under the control of sanctioned entities is another example.
What few anticipated was the extreme nervousness of the banking community around the world about dealing in any way with assets or transactions, which might somehow be tainted by sanctions. The result has been an increasing clamour from IPs, who on top of all their other sanctions-related problems found themselves unable to secure a basic resource: bank accounts through which to conduct the financial aspects of the case.
There is of course the Office for Financial Sanctions Implementations (OFSI) from whom licences can be obtained to deal with assets and other aspects caught by the UK sanctions regime, while the Department for Business and Trade deals specifically with professional and business services issues. However, neither can force a bank to provide banking services. The IP community has been working with the Insolvency Service for several months to resolve this impasse and while discussions are still ongoing, it is hoped that a workable solution can soon be found.
A never ending task
No legislative regime can ever stay up to date or cater for every practical eventuality at the sharp end of insolvency cases. Equally, even where there is political will to make appropriate changes and especially when new or amending legislation is needed, there will inevitably be delays after an agreed way forward has been established. The good news is that IPs are ever willing to engage with driving progress in partnership with government agencies and departments.
If you are a director that is looking for professional advice, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.