The new Corporate Insolvency and Governance Bill – the key points

The long-awaited Corporate Insolvency and Governance Bill, which has been the subject of numerous press briefings since the commencement of lockdown and the initial changes were announced by Business Secretary Alok Sharma, is now going through its stages within Parliament. The Bill has now received royal accent and some additional temporary changes have been made.

The key points to look out for in the Corporate Insolvency and Governance Bill are as follows.

Statutory demands and winding up petitions

There is a stated provision – albeit temporary – to restrict both statutory demands and winding up petitions which can be presented against companies, at the current time of Covid-19, where the issue is one of a debt that remains unpaid for reasons relating to present pandemic issues.

The rules will mean that a petition cannot be filed by a creditor between the period – 27 April 2020 (it has been back dated) and 30 June 2020 (or the period of one month following on from the date on which the Bill comes into force – whichever is the later date) unless the creditor who files the petition has a reasonable belief of (a) the financial effect on the debtor was not bought about by the Covid-19 pandemic, or (b) the inability of the debtor to pay its debts would have existed even if the Covid-19 pandemic had not had its believed financial effect on the debtor.

The Bill defines “financial effect”, of Covid-19, on a debtor if the financial state of the debtor was made worse because of, or for reasons relating to, Covid-19.

In the same way, there is now provision that no winding up petition can be presented – on or after 27 April 2020 – on the basis that the company has failed in respect of a statutory demand that was issued against it by a creditor if the statutory demand was served between 1 March 2020 and 30 June 2020 (these dates will, it is imagined, be extended).

20 business day moratorium period for insolvent companies

 If you, as a director of a company or an insolvent company, or a company that you believe is likely to become insolvent – you can seek a 20 business day moratorium period. This will allow your businesses time to consider whether a restructuring is the way forward or whether you need to seek new investment. What it does do is allow your company to do that without the constant threat of actions from creditors.

The directors, to obtain the moratorium, will have to submit a statement which confirms the company is, or is most likely to become, unable to pay its debts.

It is possible that the initial 20 business day moratorium can be extended for an additional 20 business days if they file a notice – supported with documentation at court. Any extension request that it is proposed must wait until the last five business days of the initial period. If the company wants or needs to receive further extensions of the moratorium beyond the 40 business days, then this will need consent to be granted by the court.

The moratorium will be overseen by a ‘monitor’ who will need to be a licensed insolvency practitioner. The role of the monitor will be to make sure that there is compliance with the details required within the moratorium. The monitor will also be required to approve the sales of assets outside the normal course of business, as well as approving any grant of new security over the company’s assets. The director – of the company – will remain in charge of running the business throughout the period of the moratorium.

All actions taken by the “monitor” and the directors will be capable of challenge by creditors if they feel that their actions have unfairly prejudiced the position of the creditors.

Suspension of wrongful trading

 Prior to the onset of the Covid-19 pandemic the existing Wrongful Trading provisions in the 1986 Insolvency Act were there to provide protection to creditors. The original provisions allowed for the imposition of personal liability upon the individual directors of those companies who are insolvent and that have taken the decision to carry on trading the business even after a point from which it is likely that there would be “no reasonable prospect of the company avoiding insolvency” and further that the continued trading can only cause the position of the company creditors to worsen.

It has been said that the new Corporate Insolvency and Governance Bill will, in response to the Covid-19 pandemic, put a hold on the wrongful trading provisions for an initial period of four months, given retrospective effect from 1 March 2020 to 30 June 2020.

As a result of these amendments announced at the start of the lockdown period to try and make life easier for companies – those liquidators and administrators appointed will not be bringing wrongful trading claims against the directors.

Despite the amendments in the new Corporate Insolvency and Governance Bill, directors should not be confused with the ability – of the liquidators and administrators – to bring proceedings against them for breaching of their duties during the period above as these will continue to be an option for the liquidator or administrator.

Whilst we now have more of the detail as to how the changes will look, it will be how it plays out in practice that will be of much more interest to everyone.

Contact us

Richard Ludlow is a Partner and specialist insolvency lawyer who leads Rix & Kay’s Dispute Resolution Team based in Sevenoaks and Brighton & Hove. For more information e richardludlow@rixandkay.co.uk t. 01732 441695