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Tuesday 26th May 2020 Andrew Morgan  Catherine Burgess  Niten Chauhan 

COVID-19: The Corporate Insolvency and Governance Bill 2019-21

In our earlier Insolvency updates, at the outset of the Covid-19 pandemic, we indicated that there were proposed changes to the Insolvency Regime and now on 20 May 2020 the Corporate Insolvency and Governance Bill 2019-21 has been published in order to provide greater clarity to those assisting distressed companies as a result of amendments to the Insolvency Act 1986 and the Companies Act 2006.

The key areas of the new Corporate Insolvency and Governance Bill (“the Bill”) are:

New statutory moratorium process

For companies and LLPs that are, or are likely to become, unable to pay their debts a new statutory moratorium process will be made available, if it is considered likely that said moratorium would result in the company being rescued as a going concern. The moratorium will initially last for 20 business days but can be extended without creditor consent for a further 20 business days and with creditor consent or by the court for up to a year (or more).

New restructuring plan procedure

Similar to a scheme of arrangement, this new restructuring plan procedure shall allow solvent and insolvent companies to propose a plan to creditors to stave off insolvency proceedings. However, the main difference from a scheme of arrangement is that even where a class of creditors has voted against it a plan can still be confirmed by the court in this new procedure. The details are intended to be inserted in the Companies Act 2006 – conveniently after the current provisions in relation to schemes of arrangement.

Ipso facto clauses

These are clauses which permit termination of a contract due to the bankruptcy, insolvency, or financial condition of a party. In the context of a company, where contractual termination would have been triggered in contracts for the supply of goods or services by said company entering into some form of insolvency proceeding the Bill will instead now invalidate the contractual termination clause.

Retrospective provisions as a result of the COVID-19 pandemic within the Bill also include:

Wrongful trading

When assessing the amount of compensation payable by a director who is found liable for wrongful trading the Courts will now ignore the relevant period – which is to be calculated as the period between 1 March 2020 and the later of 30 June 2020 or one month after the Bill comes into effect.

Winding-up petitions

In addition, no winding-up petitions can be presented on the basis of a statutory demand served during the relevant period. Also, unless the creditor has reasonable grounds to support its position that the coronavirus has not had a financial effect on the debtor company or that its debt has arisen irrespective of the same a winding-up petition cannot be presented during the relevant period simply upon evidence of a debtor company’s inability to pay its debts.

Though the Bill still has to pass through the parliamentary process to become law it is believed that this will be done swiftly and then, as with so many things in the current climate, only time will tell whether this is welcome legislation especially for distressed companies.

We shall keep our clients updated as matters unfold but in the meantime, if you require any advice or assistance or general insolvency advice please contact Niten Chauhan, Andrew Morgan or Catherine Burgess by email nchauhan@jpclaw.co.uk, amorgan@jpclaw.co.uk, cburgess@jpclaw.co.uk or by telephone on 020 7644 7263 or contact them on LinkedIn:

Niten Chauhan

Andrew Morgan

Catherine Burgess

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All articles on this website do not necessarily cover every aspect of a topic and are designed for information purposes. Reliance should not be placed on their contents without specific legal and financial advice first being taken.

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