The Corporate Insolvency and Governance Bill has become law after its progress was accelerated through the House of Commons and House of Lords.
Since being published at the end of May, 117 amendments have been made to 240 pages of legislation, leading to the passing of the Corporate Insolvency & Governance Act 2020 on 25 June.
Key provisions of the act include:
- Temporary changes to company winding-up provisions which limit the ability to advance a winding-up petition against companies that have been financially affected by COVID-19. These are set to continue until 30 September 2020 (or later if extended);
- Retrospective changes to some past and existing winding-up petitions and orders where petitions have been issued or winding-up orders made since 27 April 2020;
- Provisions applying to companies entering insolvency proceedings which prevent suppliers from terminating supply contracts or requiring payment of arrears before they continue to supply the company after the commencement if insolvency proceedings better enable those companies to continue trading and seek to rescue the company or the business;
- A new moratorium procedure to protect businesses that are insolvent or may become insolvent from creditor action where a licensed insolvency practitioner (as ‘monitor’ of the moratorium) considers the company can be rescued if protected by the moratorium. The directors will remain in control of the management of the company and seek to advance that rescue strategy;
- A new court-approved scheme of arrangement procedure to enable a restructuring of the company and/or its finances to be approved by classes of creditors. The court will have the power to ‘cram’ down dissenting classes of creditors or shareholders in certain circumstances;
- Changes to ‘wrongful trading’ provisions that limit directors’ liability to contribute to the assets of a company where they have permitted to continue to trade after formal insolvency was, essentially, inevitable. Courts will assume they are not responsible for any worsening of the position between 1 March 2020 and 30 September 2020.
While many UK insolvency professionals may claim they already had an effective set of tools to work with, these reforms are expected to better enable some corporate businesses to deal with the impact of COVID-19 while making some key changes to the rights of creditors of all sorts.
Some trade creditors who have supply contracts will be surprised that their contractual right to suspend supplies or terminate contracts where their customer enters insolvency proceedings is seriously restricted.
Whether you are a director, secured or unsecured creditor, supplier, shareholder or guarantor of a business that may be facing or may face financial strain, this new legislation will affect your options. Thrings has already started working with clients to enable them to face changes to their business that arise and, where necessary, adapt their plans to reflect this new legislation.
Note: Nothing in this article constitutes legal advice and we are not liable for any reliance on the information provided. This is a rapidly changing subject, and whilst correct at the time of writing, circumstances may have changed since publication.
If you are seeking advice or would like to discuss any of the points raised in this article, please contact Mark Cullingford or Melissa George in Thrings’ Restructuring and Insolvency team.
