Practitioners have welcomed a proposed shakeup of the UK’s corporate insolvency regime which would introduce a three-month moratorium on pursuing legal action against struggling businesses looking at rescue options.

Measures are also proposed to help businesses continue trading through the restructuring process by preventing them from being 'held hostage’ by key suppliers, and to develop a flexible restructuring plan which would make rescue schemes binding on secured and unsecured creditors.

The proposals are outlined in a consultation published this week by the Department for Business, Innovation and Skills. 

Business secretary Sajid Javid (pictured) said: 'The UK’s corporate insolvency regime is already highly regarded. But with the business world becoming ever-more fast-paced and complex, it is time ask ourselves whether - and how - the system can be improved.

'To remain at the forefront of insolvency best practice we also need to ask what a "good" regime looks like in 2016. An increasing international focus on company rescue has helped to shift the perceptions of what constitutes best practice; the UK needs to reflect this if our businesses, investors and creditors are to remain confident that the best outcomes can be achieved when things go wrong.’

Insolvency practitioner trade body R3 welcomed the moratorium proposal, pointing out that it had earlier published a similar plan. 

But president Andrew Tate cautioned: 'It’s very important that any moratorium is practical. It should be short, to make it easier to fund and to limit the burden on creditors, and there should be a licensed insolvency practitioner in place to look after creditors’ interests.’

He added: 'The government must also avoid repeating the mistakes of existing moratorium options and ensure the oversight role is proportionate.

'R3’s own recommendation is for a 21-day-long moratorium, extendable to 42 days with court approval and insolvency practitioner oversight. This should be long enough for a company to put in place a rescue plan and for it to bring creditors on board with what it is trying to do.

'A longer moratorium increases the risk of harm to creditors and could allow companies in the moratorium to "drift" rather than sort their problems out.’