Forward Thinking: Insolvency Strategies for a Post Pandemic Economy
Blog by Asad Khan and Simge Aslan, PGR students
We had the pleasure of attending the Insolvency Service’s conference at Aston University on 19 November 2021. The ‘Forward Thinking: Insolvency Strategies for a Post Pandemic Economy’ conference connected established scholars with leading practitioners and government bodies to discuss potential reforms to the UK’s insolvency regime.
The program consisted of eight presentations held by distinguished academics and professionals. As some of the presentations were delivered simultaneously, we were only able to attend those which were most relevant to our own research areas. The following is our summary and take on the issues that were discussed.
Following introductory remarks by Mark Austen, Chair of the Insolvency Service Board, the day began with a research paper by Professor David Milman, Dr Kayode Akintola, and Dr Sofia Ellina titled ‘should we rescue in insolvency?’. Despite the paper’s provocative title, the aim was not to question whether we should rescue but was rather to propose reforms to drive confidence in the insolvency regime.
The presentation quickly established that rescue is a legitimate objective – this was undeniable. The paper was more concerned with the cost benefit of liquidation where the aim is to achieve efficient recycling of assets back in the economy. The presenters took issue with the fact that in the last 18 years there has been no real effort to improve liquidation. As such, the paper focused on the need to propose reforms that would make liquidation easier and more attractive. To this extent, CVLs were discussed and thought-provoking suggestions such as a liquidation insurance to meet costs of realisation were proposed. The aim of the paper is to encourage reforms where companies that have reached the end of their life are quickly and effectively liquidated. We look forward to reading the paper’s proposals upon publication.
The second presentation was from our very own Sue Morgan who shared her research on the role of CVAs as a rescue procedure. Sue’s empirical research considered over 4 million data points and embarked on in-depth analysis of all the CVAs since 1987 (over 15,000). Sue’s analysis, which has not been done before, found that CVAs increased until 2013 and since then have followed a downward trend. Sue found that CVAs have been underused due to its negative reputation and to the lack of sufficient emphasis in policy papers on the positive impact of CVAs.
As CVA is a highly valuable yet underused insolvency procedure, Sue argued that IP firms must encourage CVAs, the HMRC should vote in favour of them (unless there is a clear reason not to), and Sue proposed a micro protocol CVA with an integral automatic interim moratorium which will encourage CVA as a choice while reducing costs. Sue’s paper and presentation were met positively by the audience, both in person and virtual, and following a quick Q&A, it was clear that Sue’s research fills a knowledge gap.
A second session included a talk by Inga West from Ashurst LLP on the choice of process for large strategic insolvencies. West’s presentation focused on a number of insolvency cases from the past where national interest was a prominent factor; namely the cases of SSI, Carillion, British Steel and Thomas Cook. West provided an overview of the factors influencing the choice of procedure between administration and compulsory liquidation and shared her stimulating insights on the recent trends and factors that tip the scale in favour of either procedure.
The lunchtime session was presented by Dr Riz Mokal, alongside his former PhD students, Dr Alfonso Nocilla and Dr Bolanle Adebola. Though Dr Nocilla and Dr Adebola were working on two separate papers, they both considered the role of pre-packs and researched potential reforms to the procedure.
Starting with Dr Nocilla, he presented his technical paper titled ‘Rehabilitating the Pre Pack’ alongside Dr Mokal. The presentation went over the reasons for developing the prepack and scholarly debate both for, and against, it. The paper found that prepacks short circuit the law’s ability to judge whether a business should be saved, and under whose management. To this extent, reforms were suggested such as limiting a debtor’s ability to shop for pre-pack approval by requiring all evaluator reports to be made public and improving transparency. Suggestions were also made to ensure evaluators are suitable regulatory professionals and hence have more power in judging and producing pre-pack reports. The paper also suggested placing personal duty on administrators to put their reputation on the line when approving a pre-pack of following through with one. Through this, the technical paper hopes to improve transparency with pre-packs and aims to ensure that pre-packs that are approved, are in fact the best solution for all involved.
Dr Adebola’s research paper built on the above to further comment on the development of pre-pack regulation. She began with highlighting the benefits of pre-packs, which often lead to better returns to secured creditors than a traditional sale. She spoke about the problems with pre-packs ranging from transparency issues and whether they reflect the view of majority of the creditors. This being said, Dr Adebola did comment that pre-packs are in fact a useful tool and as such should be improved as opposed to eliminated. Dr Adebola focused on the expectations of unsecured creditors, who often want review rights when judging pre-pack arrangements and not necessarily preview rights. They want to be able to reject a deal which they find unfavourable. As such, her paper builds on Dr Nocilla’s technical paper to recommend the implementation of the transparency and accountability reforms he suggested.
One of the last sessions of the day was from Professor Rebecca Parry of Nottingham Trent University who presented her research paper on proposing an insolvency regime for the digital age. Professor Perry noted that in a growing technology infused world, digital providers have emerged as key players whose insolvency would lead to widespread disruptions. She speaks about the role of insolvency law to distribute assets and notes that procedures are not often there to ensure continued trading. With digital firms that have become essential part of daily life, the prospect of losing services overnight is unthinkable. To this extent, Professor Parry considers the rights of customers as opposed to creditors when it comes to digital services. She argues that customers must be considered when proposing insolvency reforms for digital services as customer’s personal data and daily lives could be widely impacted by the bankruptcy of a digital provider. Though her presentation focused on the issues posed by the insolvency of a digital supplier, we look forward to her paper to learn more about her proposals for addressing such issues.
The other presentations of the conference that we were unable to attend were Professor Peter Walton’s research paper on individual insolvencies and a talk by Dr Stephen Baister on reforming the use of forms during insolvency proceedings.
The conference was very well organised, engaging, and exciting. It was a privilege to meet people and hear talks in person. The discussions and debates were truly insightful and the ability to network with leaders in the field was an honour. We are sure the hundreds of virtual attendees enjoyed the conference, and we look forward to attending next year.