Matthew Abraham’s 5 THINGS TO KNOW ABOUT THE CORPORATE INSOLVENCY AND GOVERNANCE BILL
COVID-19 has lit the spark on a number of reforms that have been in the works since 2018 and has culminated in the new Corporate Insolvency and Governance Bill (the Bill) which was introduced to Parliament on 20 May 2020. Over the next few weeks and months South Square will be providing articles, updates and client presentations discussing the new and significant changes to the UK insolvency regime.
To kick things off, here are 5 key changes introduced by the Bill that ought to be noted:
- A new statutory moratorium process. This is available to companies that “are or are likely to become, unable to pay their debts” and where “it is likely that a moratorium would result in the company being rescued as a going concern”. The moratorium will last for an initial period of 20 business days which can be extended without creditor consent for a further period of 20 business days. Extension of the moratorium beyond 40 business days will require creditor consent or an order of the Court.
- A new restructuring plan procedure. This is procedurally similar to the current scheme of arrangement under the Companies Act 2006, allowing solvent and insolvent companies to propose a plan to creditors. The principal difference being the availability of cross-class cram-down similar to a Chapter 11 plan in the US.
- Invalidation of Ipso Facto clauses. TheBill renders ineffective clauses in supply contracts that result in the termination of the contract as a result of the company’s entry into insolvency proceedings. There are limited circumstances where such clauses are permitted to operate including by virtue of an order of the Court.
- Suspension of wrongful trading. This is directly in response to the COVID-19 pandemic. It will prevent claims being brought against directors for wrongful trading arising from losses caused by trading between 1 March 2020 and the later of 30 June 2020 or one month after the Bill comes into effect (whichever is later) (the Relevant Period).
- Restrictions on statutory demands and winding-up petitions. This is another reform arising directly from the COVID-19 pandemic. Creditors will not be able to present a petition unless the creditor has reasonable grounds for believing that COVID-19 has not had a “financial effect” on the company or that the debt issues would have arisen anyway. Further, no winding-up petitions can be presented on the basis of a statutory demand served during the Relevant Period.
A more detailed review of the new changes introduced by the Bill will be set out in an article from our new member of chambers Clara Johnson. Watch this space!