Please note: The information contained in this article is correct as of 21/05/20. Due to the ongoing nature of the coronavirus pandemic and government guidance, advice is subject to change. While we will do our best to make sure the information contained in our blog is up to date, we would always advise you speak with a solicitor for specific advice.
On the 20th May 2020 the Government published the Corporate Insolvency and Governance Bill which, once made into law, will bring the biggest change in UK Insolvency law in almost 20 years.
The Bill proposes eight measures introduced to help businesses manage the economic damage caused by COVID-19. The measures are set out below.
The Bill has now introduced a measure to give struggling companies a 20-business day opportunity to rescue the company; those 20 days are extendable for up to 40 business days. During the moratorium, the company will remain under the control of the directors and no legal action can be taken against the company without leave of the court. The process will be overseen by a licensed insolvency practitioner acting as a monitor.
This new measure will allow the company, their members or their creditors to propose a new restructuring plan which provides an alternative rescue option for companies that are struggling financially. The plan will support the injection of new finance and enable complex debt arrangements. The plan will also allow certain classes of creditors to be bound by the plan.
This provision concerns the use of termination clauses in supply contracts.
If a company enters into a restructuring or insolvency procedure or moratorium, under this new provision the company’s suppliers will not be able to rely on any contractual terms to stop supplying to the company, or vary the contract terms with the company. The customer is still expected to pay for any goods supplied during this period; however they are not required to pay outstanding amounts due for past supplies during the rescue plan.
Suppliers can also be relieved of the requirements to supply if it causes hardship to their business; this is in place to safeguard small company suppliers during the pandemic.
Suspension of Wrongful Trading
This measure will require the court to assume that the director of a struggling company is not responsible for any worsening of the financial position of the company or its creditors that occurs during the relevant period (1 March to 1 June 2020). However, it remains unclear whether directors will be held liable for losses incurred before and after COVID-19.
The Bill also allows Annual General Meetings (AGM) and General Meetings (GM) to be held by other means, even if the company’s constitution does not normally allow for it. This again safeguards directors from liability for measures that usually require shareholder votes, this provision also preserves shareholder rights.
Measures relating to company meetings are intended to be retrospective from 26 March. This means that if a company has already had to hold an AGM or GM in such a way that is not allowed by the company’s constitution but is in line with social distancing measures, the directors will not face liability and will be held to have been done in accordance with the law. Also, those companies that were forced to postpone their AGMs due to the pandemic will be given a limited period after the Bill is passed to hold those AGMs using the new flexibilities.
This measure will temporarily void statutory demands made between 1 March 2020 and 30 June 2020. Winding up petitions will also be restricted from 27 April 2020 to 30 June 2020. This is to prevent aggressive creditor action against companies struggling due to COVID-19.
Petitions can still be presented if it is clear to the petitioning creditor that COVID-19 has not played any part in the debtor’s ability to pay.
Shareholders will not be prevented from exercising their rights to vote on resolutions or other matters brought before meetings; however they may have to make alternative arrangements such as voting by post or electronically.
Extension of filings
The Bill enables the Secretary of State to make regulations to extend deadlines for three types of filing: confirmation statements, accounts and registrations of charges. This will alleviate the pressure on companies who are struggling to meet their filing deadlines due to COVID-19.
The Bill is now in the stage of being formally debated in Parliament in the coming weeks. It is understood that the Government wants to get the Bill passed as soon as possible, this means that the tools set out above may be available from the start of July.
If we can assist any directors / creditors with any matters relating to insolvency law then Mark Hague can be contacted via firstname.lastname@example.org or call 0845 287 0939.