Cabinet Office urged to lead regulatory reform after Carillion collapse

Written by Richard Johnstone on 9 February 2018 in News
News

Call for changes to insolvency rules to make it easier for companies to recover from financial difficulties

Cabinet Office minister David Lidington. Credit: PA

The Cabinet Office has been urged to reform the UK’s insolvency rules in order to make it easier for companies like Carillion to restructure rather than enter receivership.

Stephen McPartland, the chair of the Regulatory Reform Committee in the House of Commons, highlighted that government had yet to respond to a consultation on reforms to the UK’s Insolvency Framework held in September 2016.

The consultation set out options for changes including the creation of a new, legally-recognised restructuring plan, which would enable a "cram down" of classes of dissenting creditors for the first time in the UK. Cram downs allow bankruptcy procedures to modify loan terms subject to certain conditions in an attempt to have all parties come out better than they would have without such modifications.


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The Insolvency Service review also proposed measures to encourage "rescue finance" money to be lent to a company in an insolvency procedure to assist in its survival.

McPartland raised the issue of possible reform to the laws with Cabinet Office minister David Lidington at a liaison committee session on Wednesday looking at the government response to Carillion's closure. The firm collapsed in January after months of speculation that it was unable to service its debts.

Lidington said that “so far, from the evidence I have seen and from talking to the head of the Insolvency Service and to the special managers they have appointed – PwC – they seem to me to be doing a very good job”.

He added: “Clearly, if they come to us and say, ‘we need some extra help’, that is something we would give to them."

McPartland said “it was reassuring to hear from the minister that the government is committed to supporting the Insolvency Service”.

However, he said that many of the basic insolvency procedures have remained largely unchanged since 2004, meaning “there is a risk that this is making it harder for UK-based companies to avoid insolvency”.

“The government needs to respond to the consultation it held 18 months ago and come forward with some proposals to reform the insolvency framework to ensure the UK remains an attractive place for corporate restructuring,” he added.

Carillion had developed a restructure plan to refocus its business towards winning contracts from central government. The corporate turnaround plan, published this week by the Work & Pensions Select Committee and the Business, Energy and Industrial Strategy Select Committee as part of their inquiry into the firm's collapse, set out plans for the firm to double its margin in government work.

Carillion collapsed in January after months of speculation that it was unable to service its debts, but the strategy set out plans to “refocus” the group on its strengths, which it stated were infrastructure contracts in both road and rail, and government contracts.

Its own recovery plan acknowledged the firm "had become too complex with an overly short term focus, weak operational risk management and too many distractions outside of our ‘core’”.

About the author

Richard Johnstone is CSW's deputy and online editor and tweets as @CSW_DepEd

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