The Corporate Insolvency and Governance Act 2020 (CIGA 2020) was brought in on 25 June 2020 in response to the COVID-19 pandemic and its effect on the economy. The aim of the CIGA 2020 is to provide companies with support through this difficult financial time and to limit the numbers of companies becoming insolvent. CIGA 2020 introduces both temporary and permanent measures in order to attempt to do so which are set out below.
On 24 September 2020, the government brought in the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 S.I. 2020/1031 (the Regulations). This is a statutory instrument which enables extensions of time for particular measures brought in by CIGA 2020.
This is a new option available to companies experiencing financial difficulties which focuses on the recovery of the company. During the moratorium period, certain debts receive a ‘payment holiday’; the directors remain in control of the day-to-day running of the company and they do this under the control of a moratorium monitor. Click here for more on the moratorium process.
CIGA 2020 brought in temporary modifications alongside this new procedure. These temporary modifications relax the entry requirements for use of this procedure. For example, companies can use the process even if they have been subject to an insolvency procedure in the last 12 months. These temporary modifications are now available until 30 March 2021.
The new restructuring plan introduced by CIGA 2020 applies to all companies liable to be wound up under the Insolvency Act 1986 that has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect its ability to carry on business as a going concern.
Classes of creditors and / or members will be asked to approve the restructuring plan. 75% of those voting in each class will need to vote in favour to enable the proposal to be approved. Click here for more information on the new restructuring plan process.
The Act has introduced a restriction on suppliers of goods or services from terminating a contract or doing any other thing because the customer has entered a relevant restructuring or insolvency process. This is even the case if there is a contractual provision allowing for the termination of the contract in these circumstances.
The Act includes a temporary exemption for ‘small suppliers’, meaning they could terminate a contract in this circumstance. This exemption has been extended until 30 March 2021.
CIGA 2020 has implemented the following temporary restrictions on the use of both winding-up petitions and statutory demands on companies:
Statutory demands on companies cannot be served between 1 March 2020 and 31 December 2020;
Winding-up petitions cannot be presented on the basis of a statutory demand that was served between 1 March 2020 and 31 December 2020; and
Winding-up petitions cannot be presented between 1 March 2020 and 31 December 2020 based on the company’s inability to pay its debts, unless the petitioner has reasonable grounds for believing that COVID-19 has not had a financial effect on the company.
At present, when the court is considering a claim against a director for wrongful trading and is assessing the director’s liability to contribute to the losses of the company in the period of wrongful trading, there is a presumption that “the person is not responsible for any worsening of the financial position of the company or its creditors that occurs during the relevant period”.
This is one measure which was not extended by the Regulations. This will therefore expire on 30 September 2020.
There are extensions to filing deadlines at Companies House and the Act makes it easier for companies to hold meetings during the COVID-19 pandemic.
The flexibility to hold annual general meetings virtually is available until 20 December 2020.
CIGA 2020 has brought about significant and far-reaching changes to insolvency law.
If you need advice on how the CIGA 2020 provisions affect your company please get in touch with Farleys’ Insolvency team on 0333 331 4582 or contact us by email.Request A Call Back
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