The Corporate Insolvency and Governance Bill 2020 was published on 20 May 2020.
It provides for amendments to the Insolvency Act 1986 (IA 1986) and the Companies Act 2006 (CA 2006) with a view to providing further assistance to distressed businesses. The main points are:
- A new statutory moratorium process. This will be available to companies and LLPs that are, or are likely to become, unable to pay their debts, but where an insolvency practitioner will certify that in their view it is likely that a moratorium would result in the company being rescued as a going concern. It will last for an initial period of 20 business days but may be extended without creditor consent for a further period of 20 business days and with creditor consent or by the court for up to a year or more.
- A new restructuring plan procedure. This will allow solvent and insolvent companies to propose a plan to creditors. Such plans must be approved by at least 75% in value of voting creditors in each class. These voting thresholds are also subject to provisions allowing for the court to confirm a plan even where a class of creditors has voted against it in certain circumstances.
- Termination clauses. The bill will invalidate contractual termination clauses in contracts for the supply of goods or services in the context of insolvency proceedings (including the new statutory moratorium process) where termination is purportedly triggered by the company’s entry into those proceedings. This will apply whether termination is drafted to happen automatically or at the election of the solvent counterparty. It will only have effect in insolvency proceedings commencing on or after the date the Bill is brought into force.
- Wrongful trading. Courts will ignore the period between 1 March 2020 and the later of 30 June 2020 or one month after the Bill comes into effect (whichever is later) when assessing the amount of compensation payable by a director who is subsequently found liable for wrongful trading. This may provide some comfort to concerned directors.
- The presentation of debt-related winding-up petitions is to be heavily restricted:
- no winding-up petitions can be presented on the basis of a statutory demand served during the relevant period; and
- no winding-up petitions can be presented during the relevant period on the grounds of an inability to pay debts unless the creditor has reasonable grounds for believing that the coronavirus has not had a financial effect on the company or that the debt issues would have arisen anyway.
The timetable for implementing the above is likely to be speedy, most probably in June.
Clearly the government is keen to try and preserve as many viable businesses as possible post lock down. For further detail see Corporate Insolvency and Governance Bill 2020, Explanatory notes
This blog was written by: Michael Stewart
DISCLAIMER: Please note that this post sets out the general position under the general law. It should not be acted upon in any specific circumstances without taking specific legal advice as to those circumstances. Also, it should not be relied upon, acted upon or treated as a substitute for specific advice relevant to particular circumstances. If you do require specific advice please contact us for assistance.
