The Corporate Insolvency and Governance Act 2020
In the summer of 2020, the government pushed through a new bill to relieve the burden on businesses during the coronavirus pandemic.
The Corporate Insolvency and Governance Act 2020 (the Act) contains both temporary and permanent measures designed to help businesses survive difficulties.
The permanent reforms are as follows:
- A moratorium from creditor action to allow a business to seek rescue
- Restrictions on terminating contracts
- A new pre-insolvency rescue and reorganisation procedure
Key temporary measures are:
- The suspension of winding-up petitions and statutory demands where difficulties have arisen as a result of the pandemic
- Changes to wrongful trading rules
- Relaxation of requirements for meetings and filing of documentation
Company moratorium (permanent)
Where a company is in difficulties, but still viable, a free-standing moratorium has been introduced to allow a breathing space from creditors. The hope is that this will allow businesses to put a rescue plan in place.
The moratorium is initially for a period of 20 business days, with the option to extend it for a further 20 business days. Further extensions are available where creditors agree or the court gives permission.
An insolvency practitioner must be appointed as a monitor to oversee operations during the moratorium period.
Protection of supply contracts (permanent)
Those supplying goods or services to a business cannot terminate or vary a contract where a company is going through an insolvency or restructuring process.
Restructuring plan (permanent)
A business that is struggling to meet its liabilities can enter into a plan with its creditors and/or shareholders to deal with financial difficulties.
Where at least one class of creditors votes in favour of the plan and dissenting creditors would not be any worse off under the plan than they would otherwise have been, all creditors can be bound by a restructuring plan.
The plan will be subject to oversight by the court.
Suspension of winding-up provisions (temporary)
Where a debt is unpaid because of the Covid-19 outbreak, a statutory demand or winding-up petition cannot be used.
The measure prevents statutory demands served during the period 1 March 2020 to 31 March 2021 from forming the basis of a winding-up petition.
A winding-up petition cannot be made during the period 27 April 2020 to 31 March 2021 unless the debtor can show that the pandemic has not financially affected the business in question or the debt could not have been paid even without the Covid-19 crisis.
Wrongful trading (temporary)
A director is usually prohibited from trading once a company is known to be insolvent, with personal liability for any losses that occur in the event that there is wrongful trading.
The Act states that the court should not impose liability on a director for the worsening of a company’s financial position for the period 1 March 2020 to 30 September 2020 or from 26 November 2020 to 30 April 2021.
Requirements for meetings and document filing (temporary)
Deadlines have been extended for the filing of company documents with Companies House and company meetings may take place virtually while the pandemic continues.
If your business is facing difficulties and you need advice on the best way to proceed, our team will work with you to identify your options.
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