By Linda Crow
Last week the UK government introduced the Corporate Insolvency and Governance Bill in Parliament.
The main objective of the Bill is to provide businesses with the flexibility and space needed to continue to trade during this difficult time caused by the COVID-19 pandemic. That said, the provisions around the new moratorium and the new restructuring plan proposal have been under consideration for a few years.
The Bill’s measures can be split into three categories:
- Those that provide greater flexibility, allowing companies protection from creditor action and safeguarding supplies whilst it explores options for rescue.
- Temporary suspension of parts of insolvency law to support directors continuing to trade during the crisis without threat of personal liability and to prevent aggressive creditor action.
- Temporary extension of certain times for filing documents at Companies House and temporary relaxation of strict compliance with constitutional requirements relating to corporate meetings (including AGMs).
The insolvency measures are:
- A new free-standing moratorium to provide eligible companies in financial distress with breathing space from creditors to explore rescue and restructuring options.
- In relation to contracts for the supply of goods and/or services: a prohibition on termination or other contractual provisions triggered by an insolvency or formal restructuring process; a prohibition on termination for prior breaches whilst a company is subject to an insolvency or formal restricting process; and provisions to prevent suppliers from making payment of any outstanding sums a condition of supply of goods and services whilst a company is subject to an insolvency process.
- A new restructuring process for companies in financial difficulty, where a company, its creditors or its members may propose a new restructuring plan proposal between the company and its creditors and/or members, which process has a “cross-class cram down” feature.
- A temporary change in the law around wrongful trading, which means that a court when considering whether to declare a director liable to contribute to a company’s assets and the amount of the contribution, shall disregard losses incurred during the prescribed period in which the company was suffering the impact of the COVID-19 pandemic (currently 1 March 2020 to 30 June 2020 (or if later, 1 month after the Bill comes into force).
- Preventing any statutory demands made against a company in the period between 1 March 2020 and 30 June 2020 from being used as a basis for a winding-up petition at any time on or after 27 April 2020, and on a temporary basis (27 April 2020 to 30 June 2020 (or, if later, 1 month after the Bill comes into force) prohibiting creditors from filing winding-up petitions where COVID-19 has had a financial effect on a company which has caused the proceedings. The onus is on a creditor to demonstrate the inability to pay is not due to the pandemic.
Certain financial services firms and contracts are excluded from the insolvency reforms.
The temporary corporate governance measures are:
- For the period from 26 March 2020 to 30 September 2020, a relaxation of strict compliance with constitutional requirements for the holding of annual general meetings and other meetings to permit meetings in a manner which is consistent with the constitutional arrangements and the need to limit the spread of COVID-19. For example, meetings may be held electronically.
- Temporary extension of deadlines for the filing of accounts, annual confirmation statements and registration of charges at Companies House.
The Bill provides the Secretary of State with temporary powers to amend corporate insolvency and related legislation, including the extension of the periods to which the temporary measures included in the Bill relate. The Secretary of State may also extend the period to which the temporary corporate governance relaxations relate.
The Bill should be enacted in June 2020.
For More Information
We will be providing further updates on the new insolvency measures in topic-focused blog posts in due course.
In the meantime, if you have any queries about any of the matters raised in this blog, please do not hesitate to contact Linda Crow or another member of the Duane Morris London Office.