Business to get breathing space and more from new Insolvency laws
The Corporate Insolvency and Governance Bill 2020 contains several changes and amendments to laws that could help insolvency practitioners to work even more effectively and efficiently in helping to rescue and restructure companies.
The bill contains both permanent and temporary legal measures to help businesses survive the prolonged coronavirus lockdown and aftermath.
The permanent measures introduced in the bill are:
- A company moratorium so struggling companies will be granted formal “breathing space” for 20 working days, extendable to 40 business days or up to a year with creditor’s consent, to pursue a credible rescue plan without creditors being able to take legal action against them. Directors will retain control during the process but it will be overseen by a licensed insolvency practitioner acting as monitor.
- Termination clauses in supply contracts will be changed so that if a company enters administration or insolvency, suppliers cannot change the terms to increase prices or otherwise terminate the agreement.
- Minority or dissenting creditors will no longer be able to reject restructuring plans that are considered fair and equitable by a court. Described as a “cross-class cramdown”, creditors would be bound by a plan if the court believes they would be no worse off than if the company entered an alternative insolvency procedure. Plans will also allow complex debt arrangements to be restructured and will also support the injection of new rescue finance.
The temporary measures are set to expire on June 30th but there is provision for the Business Secretary to extend them if required. They include:
- Wrongful Trading provisions will be suspended allowing directors to continue to trade without the threat of personal liability. Currently any company director who continues to trade if they know the business is unable to avoid going into liquidation is committing an offence.
- There will be a hold placed on Statutory Demands and Winding-Up Petitions issued by creditors for coronavirus related debts.
- There will also be a temporary easing of regulatory requirements on businesses allowing them to postpone or switch AGMs to a closed online-only version. There will also be extended delays to certain Companies House filings including annual returns and change of director notices.
Colin Haig, President of R3, the Insolvency and Restructuring trade body, said the bill represented the biggest change to the UK’s insolvency and restructuring framework in almost twenty years.
“This legislation comes not a minute too soon.
“The new tools will add to the options available to insolvency and restructuring professionals trying to rescue businesses and will enhance the UK’s globally recognised insolvency and restructuring framework.
“Previously the moratorium would only have been open to solvent businesses but now the legislation will enable insolvent businesses to obtain a breathing space to review their options, free from the risk that a creditor may push the company into an insolvency procedure prematurely.
“This greatly increases the number of struggling but potentially viable businesses who could benefit from a vital breathing space and will help to repair the economic devastation caused by the pandemic”.
The new legislation shows the government is serious about giving administrators and insolvency practitioners the tools they need to help rescue and restructure businesses that might otherwise have had a bleak future.
Even the threat of some of the new rules will cause creditors to rethink an aggressive stance and will give a fairer hearing to plans to let a company emerge from lockdown and eventually prosper once again.
Get in touch with us today by email, chat or telephone to see how we can plan to use these new tools to bring your business back from the brink.