Evaluating the viability of sustainability in times of company financial distress

The UK’s insolvency framework, notably the Insolvency Act 1986 and the Corporate Insolvency and Governance Act 2020, aim to facilitate company rescue and maximise returns for creditors. The Corporate Insolvency and Governance Act 2020 (CIGA 2020) has expanded the availability of rescue procedures with the overarching objective of reviving financially distressed companies as a going concern. Traditionally, company rescue mechanisms often prioritise short-term and temporary solutions for financial restructuring, adopting a narrow interpretation of the perceived viability of companies.
Drawing on recent case law and legislative developments, the objective of the paper is twofold. First, the paper will highlight the mechanisms by which the current UK insolvency framework promotes sustainability in the sense of business longevity and value creation. Second, the paper will explore whether insolvency and rescue proceedings can potentially evolve to support not only creditor recovery but also broader ESG objectives. Directors’ statutory duties under the Companies Act 2006 now mandate considering the long-term consequences of decisions, including their impact on the community and environment. The paper will consider whether this should extend to periods of financial distress and whether the concept of business viability and preserving the going concern value should be broadened. As such, the paper will consider whether it’s feasible to integrate broader ESG considerations at times of financial distress and whether this may lead to enhancing long-term value creation and potentially attract a broader range of stakeholders.