The Corporate Insolvency and Governance Act 2020 introduces a series of measures amending current insolvency and company legislation. Some are temporary, some permanent and many have been in the pipeline for some time. However, the timing of the law reforms – mid-pandemic – should provide considerable assistance to companies battling the storms of COVID-19.
These changes are arguably the most significant reforms of UK insolvency law for a decade.
The Act is not only relevant to companies in difficulty: it is also essential reading for businesses dealing with such companies. For example, if your business supplies a company that you think is struggling financially, you may want to consider the implications of your relationship now.
Key provisions of the new Insolvency Act
Significant amendments to the legislation include:
- The introduction of a moratorium. This gives companies that are unable, or likely to become unable, to pay their debts 20 business days’ breathing space, (with the possibility of extending this). As such, creditor action will be put on pause, leaving directors at the helm to look at the options for rescue and restructuring. During this time, no legal action can be taken against the company. The process is overseen by a monitor who must be a licensed insolvency practitioner.
- Preventing suppliers enforcing termination clauses in their contracts to protect supplies to the company. There is a temporary exemption for small company suppliers during the COVID-19 pandemic. In usual times, safeguards for suppliers are included. This allows for a business which would experience hardship if required to continue to supply the company to apply to terminate a contract.
- A new restructuring plan. This will be binding on particular classes of creditors in certain circumstances.
- Various temporary COVID-19 easements. For example, allowing companies to hold closed AGMs, conduct business and communicate with members electronically.
Some of the measures are not available to financial services firms and contracts.
Insolvency provisions differ in the detail in Scotland and Northern Ireland, but broadly, the measures apply across the UK.
There are a number of temporary changes to ease the administrative burden on companies. Many filing deadlines will be automatically extended and the Companies House website summarises the position here.
It is important to note that as some COVID-19 easements are introduced others are now expiring. Companies House general COVID-19 guidance is provided here.
If you have concerns about the outlook for your company or the financial viability of your customers, we are happy to provide further advice. Use our online enquiry form or contact one of our offices.