The government has this week brought in to action the Corporate Governance and Insolvency Bill 2020, which sees the introduction of new corporate restructuring tools for insolvency and restructuring process, giving companies the maximum chance of surviving in times of distress.
The legislation was first announced in late March, as the government sought to adjust the insolvency and corporate governance framework to reflect the difficulties engendered by the COVID-19 pandemic. Changes to the regimes were previously consulted on as far back as summer 2018.
As discussed in a previous BSR Insight, the Bill introduces several key pillars aimed at assisting companies in restructuring efforts during the coronavirus crisis. The Bill temporarily suspends certain parts of insolvency law, enabling directors to continue trading without threat of personal liability from wrongful trading laws and to protect them from creditor action.
Primarily, the Bill introduces a moratorium, giving companies an initial 20 business days to pursue a rescue plan, during which time no legal action can be taken against the company without leave of a court. This period is extendable for another 20 business days to allow time, for example, for any funds secured to be injected into the company enabling it to leave insolvency.
The moratorium is described by the Department for Business, Energy & Industrial Strategy as “vital” in that it helps “to ensure that companies which are struggling as a direct result of the pandemic are given the opportunity to survive.” The only companies excluded from applying for a moratorium are those in the financial services sector.
The Bill also prohibits termination clauses normally engaged on entering an insolvency procedure and prevents suppliers from ceasing supply during the process or requesting additional payments. A new restructuring plan for companies in financial distress is also introduced, including new cross class cram down procedures allowing a class of directors to be bound to a restructuring plan, even if they don’t agree to it, with safeguards for affected creditors provided.
It also includes the ability for the insolvency regime to flex according to the changing demands of the crisis, the temporary removal of the threat of personal liability for wrongful trading, a temporary prohibition on creditors filing statutory demands and winding-up petitions due to coronavirus-related debts. Companies will also be provided greater flexibility to hold meetings such as AGMs.
Additionally, the Bill will seek to ease the burdens that businesses are currently facing by temporarily extending filing deadlines at Companies House. Finally, some of the temporary measures will be retrospective, giving companies immediate support during the crisis.
Detailing the changes, the government cites an impact assessment estimating that the changes will result in net benefits to UK businesses totalling over £1.9 billion.
News of the Bill’s introduction this week was perhaps buried amid headlines about Business Secretary Alok Sharma MP appearing to be ill at the despatch box during the second reading of the Bill. Sharma was subsequently tested for COVID-19 and went into self-isolation.
While Sharma ultimately tested negative, the fact that he appeared ill while in parliament raised furore over Jacob Rees-Mogg’s insistence that remote voting end and MPs return to Westminster. With many pointing out that, in the Houses of Parliament’s cramped corridors, chambers and meeting rooms, social distancing is practically impossible, and that MPs will subsequently be travelling all over the country after having been in this environment.
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