The Corporate Insolvency and Governance Bill (the CIGB) published on 20 May 2020 will bring in the biggest reforms to the UK’s restructuring and insolvency regime since 2002.
The CIGB has been introduced on an emergency basis to form the centre piece of the Government’s Coronavirus business legislative strategy in an attempt to prevent the tsunami of insolvencies that has been predicted. The CIGB is currently being debated in Parliament with the government seeking to receive royal assent as soon as possible.
The CIGB contains a number of permanent reforms and temporary measures designed to help financially viable companies survive a period of unprecedented interruption and ultimately avoid a terminal insolvency.
In this article, Corporate Commercial Solicitor, Dominic Shard, provides an overview of the five key corporate restructuring and insolvency measures contained in the CIGB that will undoubtedly be of particular interest to professionals dealing with distressed companies over the coming months.
The CIGB introduces a new moratorium for companies and LLP’s needing breathing space to pursue a rescue plan. The Government’s hope is that the moratorium will give struggling companies a vital tool to aid survival.
The moratorium provides protection from legal and enforcement action being taken against the company without leave of the court.
The moratorium leaves the company’s management in control of the company but includes the appointment of a licensed insolvency practitioner to monitor and provide some oversight and safeguards for creditors. The moratorium will last for an initial period of 20 business days but may be extended without creditor consent for a further period of 20 business days and with creditor consent or by the court for up to one year.
The moratorium will automatically end if the company enters into a compromise arrangement or insolvency procedure (be that a CVA, administration or liquidation).
Complementing the moratorium, the new restructuring plan provides a company experiencing financial difficulties with the ability to propose an arrangement with its creditors and members to restructure its affairs.
Modelled on the existing Scheme of Arrangement and CVA procedures,, the new restructuring plan allows courts to sanction a plan that binds dissenting creditors (called a ‘cross-class cram-down’) provided the plan is fair, equitable and in the interests of creditors. Unlike with a CVA, the restructuring plan will be able to bind both secured and unsecured creditors.
Supplier termination clauses
This new provision will preserve an insolvent company’s supply contracts in order to aid its rescue plan, by restricting all suppliers of goods or services from terminating a contract by reason of a company’s insolvency.
There are safeguards for suppliers to ensure that continued supplies are paid for and the ability to apply to court to allow termination on grounds of hardship.
The Bill also includes the following retrospective Coronavirus temporary provisions:
- Temporary suspension of wrongful trading liability
Outside of these extraordinary times, the wrongful trading provisions contained in the Insolvency Act 1986 provides protection to creditors by imposing personal liability on directors for continuing to trade when there is no reasonable prospect of avoiding insolvency.
Under the CIGB, from 1 March 2020 to 30 June 2020 the wrongful trading provisions are being temporarily suspended.
This emergency measure removes the threat of personal liability from directors, with the intention of helping them to continue to trade through the crisis notwithstanding uncertainty over whether the company will be able to avoid insolvency in the future.
While the measure provides some relief for directors, it does relieve directors from all of their duties, such as the duty to take into account the interests of creditors where there is a likelihood of insolvency.
- Statutory demands and winding-up petitions
This temporary measure restricts creditors from presenting statutory demands or winding up petitions where the debt is unpaid due to Coronavirus.
The measure has retrospective effect from 27 April 2020 and is due to last until 30th June or one month after the CIGB comes into effect (whichever is later).
- Companies House filing requirements
The CIGB also allows the Secretary of State to make further extensions to deadlines for Companies House filings beyond those which have already been granted.
The extended periods shall not exceed:
- 42 days – where the existing period is 21 days or fewer; and
- 12 months – where the existing period is 3, 6 or 9 months
It is anticipated that many business, even the most successful businesses pre-coronavirus, will need some help getting back to business following the coronavirus crisis and so our advice is to seek help without delay.
Contact our Corporate Commercial team today on 01225 750 000 or email email@example.com, we have an extensive range of expertise which allows us to develop the most appropriate business solutions on a case by case basis. We are here to guide and support you and your business through this challenging time.