Secured Transaction Law Reform Project replies to Insolvency Service consultation paper.

The Insolvency Service has recently issued a consultation entitled ‘A Review of the Corporate Insolvency Framework: A Consultation on Options for Reform’, which includes certain proposals for priority of rescue finance. This directly relates to the work currently being carried out by Working Group C of the STR project.

Although the consultation concentrates on post-filing financing arrangements, an equally important source of insolvency funding comes from assets within the business. An administrator is free to use assets which are subject to a floating charge without the consent of the creditor or the consent of the court. Working Group C has been told that lenders demand detailed advice as to whether charges will be fixed or floating, which may be difficult to give definitively because of the opacity of the tests. It is feared that that at best this increases transaction costs in the finance market for healthy companies and, at worst, reduces the availability of finance. One vital aspect of Working Group C’s work is to explore the case for the current English law position and for the various options for reform, which impacts directly on the proposals for priority for rescue finance in the consultation. The response to the consultation is available here.