Debt Restructuring in Transition

Abstract

UK debt restructuring is undergoing a period of immense change. Two developments in particular have contributed to this transformation. The first is legislative: the Corporate Insolvency and Governance Act 2020 (CIGA) introduced a number of powerful new tools into the armoury of financially distressed companies wishing to restructure their debt. The second is political: the UK’s exit from the EU has impacted on UK debt restructuring, particularly the use of English restructuring tools involving companies with creditors in EU member states. These developments have four major implications for UK debt restructuring, namely (i) a shift from a creditor-focused regime to one which is more pro-debtor; (ii) the development of a modular system for debt restructuring and insolvency more generally; (iii) a blurring of the boundary between restructuring and insolvency; and (iv) a more complex cross-border regime. In combination these amount to a seismic shift in the UK debt restructuring landscape. The full consequences of these changes, however, remains to be seen as we are currently in a period of transition. The final impact of these developments will only emerge as commercial parties negotiate new arrangements or renegotiate existing ones against the backdrop of judicial decisions and the effects of regulatory competition. Nevertheless, as this paper examines, it is clear that there will be profound implications for companies, their creditors, employees, customers and other stakeholders, and for the UK’s role as a global player.

Keywords: debt restructuring, financial distress, Corporate Insolvency and Governance Act 2020, Brexit

JEL Classification: K22