The Government has published a new Corporate Insolvency and Governance Bill (‘the Bill’) which contains a number of changes to the Insolvency Act (‘IA’). The aim is to provide vital support to businesses to help them through this period of instability.
The Bill’s three main purposes are:
- To introduce new corporate restructuring tools to the insolvency and restructuring regime to give companies the breathing space and tools required to maximise their chance of survival.
- To temporarily suspend parts of insolvency law to support directors to continue trading through the emergency without the threat of personal liability and to protect companies from aggressive creditor action.
- To amend Company Law and other legislation to provide companies and other bodies with temporary easements on company filing and annual general meetings (which will extend to charitable incorporated organisations and mutual societies) thus allowing them to focus their resources on continuing operations in this uncertain time.
The Bill includes both temporary and permanent changes, which are summarised below:
- Suspending the Wrongful Trading (S214) provisions of the Insolvency Act by introducing an assumption that the directors are not responsible for any worsening of their company’s position during the Covid-19 pandemic.
- Restricting the right of creditors to petition for companies to be wound up, where debts have not been paid due to the Covid-19 pandemic.
- Easing of regulatory requirements – enabling them to hold closed AGMs, conduct business and communicate with members electronically, and by extending filing deadlines.
- The Moratorium – to give companies breathing space from their creditors whilst they seek a rescue. To be overseen by an insolvency practitioner acting as ‘monitor’. This replaces the old CVA moratorium which was very seldom used and it will be interesting to see if the new procedure proves more popular.
- Protection of supplies of goods and services – by prohibiting the use of termination clauses by suppliers, subject to safeguards for suppliers facing hardship and a temporary exemption for small firms during the coronavirus emergency.
- New restructuring tool – replaces existing ‘scheme of arrangement’ provisions in the Companies Act. It is a largely court-based procedure, drawing on the US Chapter 11 bankruptcy procedure.
Whilst the changes in the Bill are largely welcome, like any legislation update, the devil is in the detail. There are likely to be many amendments to the Bill before it is fully implemented, particularly around the new Moratorium and the role of the monitor and the Restructuring Tool. Indeed further changes may also be necessary once the Bill is put into practice.
What Happens Next?
MPs will next consider all stages of the Bill on Wednesday 3 June 2020. We expect the Bill to come into effect in late June or July.
The CBW Corporate Recovery & Insolvency Team is available to assist any companies or directors experiencing financial difficulty and has the expertise to guide you through the options available.