In order to relieve the burden on businesses and to assist with economic recovery during the COVID-19 pandemic, the government has introduced the Corporate Insolvency and Governance Bill. The Bill was introduced in Parliament on 20th May and is considered a significant piece of legislation, representing a reform to UK restructuring and insolvency law.
Given the current uncertainty and challenges experienced by businesses, the introduction of the Corporate Insolvency and Governance Bill will be welcomed by businesses suffering economic damage.
The Bill implements a number of permanent and temporary measures which will serve to amend insolvency and company law in order to manage and address the challenges stemming from the effects of Covid-19, in particular to enable businesses to continue trading.
• Company moratorium
This is a permanent measure to provide support for companies, and will provide companies with breathing space from their creditors, enabling time to seek a rescue plan or restructure. During this particular time it will not be possible to take any legal action against a company without leave of the court.
This provision will give businesses a 20 business day opportunity in order to take into account a rescue plan, extendable to 40 business days. During the moratorium, the company will remain under the control of its directors. However, the process will be overseen by a licensed insolvency practitioner.
• Termination clauses
The Bill provides a permanent change in respect of the use of termination clauses in supply contracts. It prohibits the use of termination clauses by suppliers, subject to safeguards for suppliers who are facing hardship and a temporary exemption for small firms during the coronavirus emergency.
Therefore, in the case of a company who has entered either an insolvency or restructuring procedure or acquires a moratorium during the coronavirus crisis, this will prevent the company’s suppliers from relying on contractual terms to terminate supplying or varying the contract terms with the company.
During the insolvency process, the customer is required to pay for any supplies made but during the rescue process it is not required to pay outstanding amounts due for past supplies.
• Restructuring plan
The Bill also makes provision for a restructuring plan which creditors will be bound by. This will allow struggling companies or alternatively their creditors or members, to propose a new restructuring plan which will offer an another rescue option for companies that are suffering financially.
The new court-based restructuring plan is modelled on the pre-existing English Scheme of Arrangement, will allow a company to bind all its creditors to it, including groups of dissenting creditors. The final agreement will be signed off by the court.
• Statutory demands
Temporary provisions have been introduced to void statutory demands which have been made between 1 March 2020 and 30 June. The Bill also makes provision to restrict winding up petitions from 27 April 2020 to 30 June 2020.
The purpose of such temporary measures is to assist companies who are struggling as a result of the coronavirus and to avoid aggressive creditor action against them.
• Suspension of wrongful trading
The Bill makes temporary provision for the removal of the threat of personal liability for wrongful trading in the case of a company becoming insolvent, where its directors have used their best endeavours to continue trading during the crisis.
This will be applicable for any period of trading between 1 March to 30 June.
However, directors should be mindful that each of the other checks and duties on their role remain in place.
• Annual General Meetings (AGMs) and general meetings (GMs)
For companies who are under a legal duty to hold an Annual General Meeting (AGM) or General Meeting (GM), the Bill temporarily enables them to hold a meeting by alternative means. Therefore, directors will not be held liable for measures which require shareholder endorsement and shareholders rights will be preserved.
• Allowing temporary measures to be retrospective
The measures in the Bill which relate to company meetings are intended to be retrospective from 26 March. As a result, where a company has already held an AGM, whilst adhering to social distancing measures, despite not meeting the obligations as set out in their constitution, they will have complied with the law.
• Shareholder rights
The measures introduced by the Bill will not stop shareholders from using their right to vote on resolutions or other matters addressed before the meeting.
• Extension of filings
The Bill allows for regulations to extend the deadlines for filings including accounts, confirmation statements and the registration of charges.
This particular measure will ultimately lessen the pressure on companies who are unable to meet their current filing deadlines, whilst enabling them to concentrate their resources in order to sustain their businesses but making sure that filings are submitted with Companies House within a reasonable time.
It should be noted that a number of the measures in the Bill will require secondary legislation prior to coming into force and as a result we anticipate that they will be introduced in due course, however, it is understood that these will be given quick and urgent attention.
If you have any queries relating to the introduction of the new Bill and your specific business needs, please contact our team in the Commercial or Insolvency Department on 02890 321000.