Covid-19 and Changes to Corporate Insolvency Law
On 20 May 2020, the Government laid before parliament its Corporate Insolvency and Governance Bill. If passed in its present form, the Bill will bring dramatic changes to corporate insolvency law and generally the governance of companies and other entities. The driver behind the Bill appears to be an attempt to control the economic consequences of the Covid-19 pandemic on UK companies.
In short, the Bill includes:
- A moratorium giving struggling businesses an initial 20 business days to consider a rescue plan; no legal action can be taken against a company during this period without the permission of the Courts.
- A process to allow struggling companies, or their creditors or members, to put forward a plan for the restructuring of complex debt and the injection of rescue finance. It allows for dissenting creditors to be bound by the plan, if the Court approves the plan as fair and such that those creditors would be no worse off than if the company entered an alternative insolvency procedure.
- A mechanism such that suppliers to companies in insolvency or restructuring procedures and moratoria will not be able to rely on contractual terms to stop supplying, or vary the contract terms with the company (for example, increasing the price).
- Statutory demands made between 1 March 2020 and 30 June 2020 will be void, with a restriction on winding up petitions from 27 April 2020 to 30 June 2020.
- A suspension of wrongful trading laws such that when considering the personal liability of a director the Court is to assume that the director is not be responsible for the worsening of the company’s or creditors financial position during the period 1 March 2020 to 1 June 2020. Directors must, though, be aware that they remain subject to other duties which can bring personal liability and disqualification.
- Companies may temporarily (and retrospectively, back to 26 March 2020), hold AGMs and other meetings in certain ways other than might be required by the company’s constitution.
- An ability of the Secretary of State to make regulations to extend deadlines for the filing of accounts, confirmation statements (and certain associated filings) and registrations of charges.
The Bill is not yet law, and it may of course change as it passes through parliament in the coming weeks. In whatever shape the Bill emerges, though, what the Government has demonstrated is its determination to take steps to protect British businesses, to protect British workers and to protect the British economy.
If you would like to discuss your business or your responsibilities as a director, please contact Andrew Tonge on firstname.lastname@example.org
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