The Government has now introduced the Corporate Insolvency and Governance Bill to Parliament.

This Bill will help companies to maximise their chances of survival, protect jobs and support the country’s economic recovery. It consists of insolvency measures which will support businesses through this period and, where needed, provide new options for company rescue, and corporate governance measures, which will give directors more flexibility during the Covid-19 emergency to focus on the things that matter most while they have reduced resources and restrictions.

There are eight measures included in the Bill. The company rescue proposals had been previously announced by government and were in development before Covid-19.

Company Moratorium: The Bill gives struggling businesses a formal breathing space to pursue a rescue plan. It creates a moratorium during which no legal action can be taken against a company without leave of the court. It is vital to introduce the moratorium now to ensure that companies which are struggling as a direct result of the pandemic are given the opportunity to survive.

Ipso Facto (Termination) Clauses: When a company enters an insolvency or restructuring procedure, suppliers will often either stop or threaten to stop supplying the company. The supply contract often gives them the right to do this, but it can jeopardise attempts to rescue the business. The Bill will mean suppliers will not be able to be jeopardise a rescue in this way. The proposals include safeguards to ensure that continued supplies are paid for, and suppliers can be relieved of the requirement to supply if it causes hardship to their business. There will also be a temporary exemption for small company suppliers during the emergency.

Restructuring Plan: This will support viable companies struggling with debt obligations to restructure under a new procedure. It allows courts to sanction a plan that binds creditors to a restructuring plan if it is fair and equitable and in the interests of creditors. Creditors vote on the plan, but the court can impose it on dissenting creditors (‘cram down’).
Suspension of Wrongful Trading: The Bill will temporarily remove the threat of personal liability arising from wrongful trading for directors who continue to trade a company through the crisis with the uncertainty that the company may not be able to avoid insolvency in the future. Liquidators and administrators will not be able to take an action against an insolvent company’s directors for any losses to creditors resulting from continued trading while the wrongful trading rules are suspended. This will remove the pressure on directors to close otherwise viable businesses to avoid potential liability. All the other checks and balances on directors remain in place.

Statutory Demands and Winding up Petitions (2 measures): The Bill helps struggling businesses by temporarily removing the threat of winding-up proceedings where unpaid debt is due to Covid-19. It introduces temporary provisions to void statutory demands issued against companies during the emergency. This gives businesses the opportunity to reach realistic and fair agreements with all creditors.

Annual General Meetings (AGMs): AGMs (and General Meetings) are central to good corporate governance, but having hundreds of individuals in a room is not permitted under the statutory restrictions on public gatherings, so many companies cannot hold their AGMs in accordance with their constitutions. The Bill temporarily allows those companies and other bodies that are under a legal duty to hold an AGM or GM to hold a meeting by other means even if their constitution would not normally allow it. As a result, directors will not be exposed to liability for measures that need shareholder endorsement, and shareholders rights are preserved.

Filing Requirements: Companies are required to make a number of different filings by fixed deadlines at Companies House each year. Missing the deadline automatically results in a financial penalty. Companies House has already done all it can under existing law to offer extensions to those deadlines. Over 70,000 companies have taken advantage of this flexibility already, but they may need more. The Bill allows the Secretary of State temporarily to make further extensions, enabling struggling businesses to focus on the things that matter most while they have reduced resources and restrictions.

The Bill has now been laid in parliament ahead of being formally debated in the coming weeks.

Please contact a member of our expert insolvency team should you require any advice concerning potential insolvency solutions.

Dean Collins

(029) 2082 0340