The Corporate Insolvency and Governance Bill: A Summary
On 20 May 2020, the Government introduced the Corporate Insolvency and Governance Bill (Bill) in Parliament, which, through the amendment of certain insolvency and company laws, will implement measures to support businesses through the challenges that COVID-19 has inflicted.
The Bill is expected to go through an expedited parliamentary process and become law in the near future.
The Government has outlined the three main purposes of the Bill:
- to introduce new tools to aid corporate restructuring, giving companies a respite to increase their chances of survival;
- to temporarily relax wrongful trading laws for directors in order to remove the threat of personal liability and prevent aggressive creditor action; and
- to ease the burden of company filings and annual meetings allowing business (and charitable incorporate organisations) to concentrate on the continuity of operations.
So, how will these changes be implemented? We have set out a number of key elements below.
A new company moratorium measure will be introduced, which will give companies a 20 business day period to explore and consider a rescue plan. This period can be extended to 40 business days, and further thereafter with the support of the court or the creditors.
During this period, no legal action can be taken against the company without the leave of the court. Whilst the company will remain in the control of the directors, the process will be overseen by a monitor who must be a licensed insolvency practitioner.
The Bill will introduce a permanent change to the use of termination clauses in supply contracts. This will be applicable where a company has obtained a moratorium or has entered into a restructuring or insolvency procedure during this period of crisis.
In short, suppliers will not be allowed to stop supplying to companies by relying on termination clauses contained in their contracts.
The company relying on this measure must pay for the supplies once the insolvency process has begun, but is not required to pay for past supplies whilst a rescue plan is being considered.
This measure will also prevent the terms of the supply arrangement being varied (for example, by raising prices etc). Whilst these changes are great for businesses, strain could be put on suppliers.
To combat this, safeguards have been introduced so that where the obligation to supply causes hardship to the supplier, they can be relieved of such obligation. There is also provision for temporary exemption for small suppliers during the crisis.
New restructuring options will also be available for companies in financial difficulty, which will allow them to propose new restructuring plans to deal with complex debt arrangements and support the injection of finance pursuant to the companies rescue plan.
Dissenting classes of creditors will be bound by the plan, provided that the court believes it to be just and equitable to do so.
The Bill will introduce the temporary removal of the threat of personal liability for wrongful trading by directors. This measure is applicable for any period of training between 1 March 2020 and 30 June 2020.
The Secretary of State will be able to make regulations to extend statutory deadlines for the filing of accounts, confirmation statements and the registration of charges.
If you have any questions regarding any of the above, please email or call our Corporate and Commercial team on 0113 207 0000.