Newsflash – Corporate Insolvency and Governance Bill introduced in Parliament has been saved
Newsflash – Corporate Insolvency and Governance Bill introduced in Parliament
On Wednesday, the government introduced the Corporate Governance and Insolvency Bill in Parliament, which will put in place a series of measures to amend insolvency and company law to support business to address the challenges resulting from the impact of COVID-19.
There are five temporary measures responding directly to COVID-19 situation:
- AGMs - the Bill proposes to temporarily allow those companies that are under a legal duty to hold an AGM or general meeting to hold a meeting by other means even if their constitution would not normally allow it. If passed the Bill will apply retrospectively from 26 March to 30 September 2020 (with further extensions if required).
- Filing - companies would automatically and immediately be granted a three-month extension to the filing of their accounts following a fast-track online process.
- Wrongful trading - the Bill proposes to temporarily remove the threat of personal liability arising from wrongful trading for directors who continue to trade a company through the coronavirus pandemic with the uncertainty that the company may not be able to avoid insolvency in the future. Liquidators and administrators will not be able to take an action against an insolvent company’s directors for any losses to creditors resulting from continued trading while the wrongful trading rules are suspended. This will be for any period of trading between 1 March to 30 June 2020.
- Temporary suspension of winding up petitions founded on statutory demands - the Bill introduces temporary provisions to prevent any statutory demands made against companies in the period between 1 March 2020 and 30 June 2020 from being used as the basis of a winding-up petition at any point on or after 27 April 2020.
- Temporary suspension of winding up petitions - the Bill proposes to help struggling businesses by temporarily removing the threat of winding-up proceedings on a petition presented in the period from 27 April 2020 to 30 June 2020 unless the petitioner can satisfy the court that the company’s inability to pay the debt was unrelated to the coronavirus pandemic.
In addition, there are a further three measures which seek to implement proposals from a 2016 Review of the Corporate Insolvency Framework consultation. These measures represent permanent changes to Insolvency law:
- Company moratorium - the Bill proposes to create a debtor in possession moratorium or breathing space for an initial 20 business days, extendable up to one year, during which no legal action can be taken or continued against a company without leave of the court.
- Suspension of contractual “termination clauses” - when a company enters an insolvency or restructuring procedure, suppliers will often either stop or threaten to stop supplying the company. The supply contract often gives them the right to do this, but it can jeopardise attempts to rescue the business. The proposed Bill will mean suppliers will not be able to jeopardise a rescue in this way. The proposals include safeguards to ensure that continued supplies are paid for, and suppliers can be relieved of the requirement to supply if it causes hardship to their business.
- Restructuring plan - this measure will allow struggling companies, or their creditors or members, to propose a new restructuring plan between the company and its creditor/members or classes thereof. The plan will enable complex debt arrangements to be restructured and will support the injection of new rescue finance. It will introduce a cross-class cramdown (i.e. a class of creditors/members can be compelled to be bound by the plan but not for the benefit of creditors/members junior to them) that will allow dissenting classes of creditors to be bound by the plan, if sanctioned by the court as fair and equitable, and if the court is satisfied that those creditors would be no worse off than if the company entered an alternative insolvency procedure.
Further detail on the Bill is available here. We will provide a further update once the Bill receives Royal Assent following its passage through Parliament.