Government measures in key jurisdictions 3rd edition final - Flipbook - Page 139
UnitedKingdom
Insolvency
Has the government
made any changes
to insolvency
legislation?
On 26 June 2020, the Corporate Insolvency and Governance Act 2020 (the Act) was passed into law. The
Act has introduced a series of measures to amend insolvency and company law to support businesses to
address the unique circumstances arising from the Coronavirus pandemic.
The insolvency measures will provide vital support to businesses to help them through this period of
instability and include:
•
– As we outlined in our previous briefing, now enacted, the
provisions in the Act relax the threat of personal liability for wrongful trading from company directors
who continue to trade a company through the coronavirus pandemic. The provisions set out in the Act
do not provide a blanket suspension of the wrongful trading provisions. The provisions state that the
directors will not be responsible for any worsening of the financial position of the company or its
creditors that occurs during the period 1 March 2020 to 30 September 2020. These changes will help
boards where the company is (or was) in financial difficulties and there is significant uncertainty
regarding the businesses’ financial future. Whilst directors may not be liable to contribute to the extent
the financial position worsens during this period, it is important to note that this does not apply to the
period before and after the period set out in the Act. Decisions and actions occurring before this period
will still be able to be reviewed and will not fall under the protections laid out in the Act. There are
likely to be significant challenges “apportioning losses” in this manner. In addition, directors may still
be subject to action for other breaches of duties during the coronavirus pandemic.
•
– The Act has introduced a stand-alone moratorium which will give
struggling businesses a 20-businesss day opportunity to consider a rescue plan, extendable by the
directors for a further 20 business days or with creditor consent up to a year. During the moratorium
period, the day to day running of the business of the debtor company remains with the directors but
under the supervision of a monitor (an insolvency practitioner). The monitor’s consent is required
before the directors can undertake certain transactions. Creditors and lenders will not be able to take
enforcement action against the debtor company (including the enforcement of security) during the
moratorium period. Landlords will also be unable to exercise rights of forfeiture. The debtor company
must continue to pay certain debts during the moratorium in order for it to continue. These payments
include amounts due for new supplies during the moratorium, rent in respect of a period during the
moratorium, wages and salary, and amounts due under financial contracts, including loan agreements.
•
– The Act includes a new restructuring process which enables any creditor or
member of the company, or appointed administrator or liquidator to propose a Restructuring Plan to
the company’s creditors and/or shareholders. This process is available to companies which have
encountered or are likely to encounter financial difficulties that affect their ability to continue to trade
as a going concern. The Plan is similar to a scheme of arrangement, and requires court sanction. The
Act introduces a new “cross-class cram down” feature to the Restructuring Plan which is not possible in
a scheme of arrangement. The cross-class cram down will allow dissenting classes of creditors
(including secured lenders, landlords and suppliers) or members to be bound by the Plan. The Plan will
enable complex debt arrangements to be restructured and will support the injection of new finance in
order to support a rescue.
•
– From 27 April 2020 to 30 September 2020, a
creditor is prohibited from presenting a winding-up petition, unless it has reasonable grounds to
believe that either coronavirus has not had a financial effect on the debtor company, or that the
company was unable to pay its debts regardless of the financial effect of coronavirus. This will be
difficult to prove if the petitioning creditor does not have access to the debtor company’s up to date
accounts and records. Further, there is a prohibition on the use of statutory demands served between
1 March 2020 and 30 September 2020 as the basis for presenting a winding up petition on or after 27
April 2020.
Government measures in key jurisdictions
139