The most significant reforms of UK insolvency law for a decade? The Corporate Insolvency and Governance Act 2020 puts in place a series of measures amending insolvency and company law. Some are temporary, some permanent.
Many have been in the pipeline for some time, but the final timing of the legislation, mid-pandemic, should provide a considerable help to companies combating the storms of COVID-19. Insolvency provisions differ in the detail in Scotland and Northern Ireland, but broadly, the measures apply across the UK.
The Act is relevant not just to companies in difficulty. It also makes important reading for businesses dealing with such companies. If, for example, your business supplies a company that you think is struggling financially, you may want to consider the implications of your relationship now.
- introduction of a moratorium. This gives 20 business days’ breathing space, (with the possibility of extending this), to companies unable, or likely to become unable, to pay their debts. Putting creditor action on pause, it leaves directors at the helm to look at rescue and restructuring options. During this time, no legal action can be taken against the company without leave of the court. The process is overseen by a monitor who must be a licensed insolvency practitioner
- Protecting supplies to the company by preventing suppliers enforcing termination clauses in their contracts. There is a temporary exemption for small company suppliers during the COVID-19 emergency. Generally, safeguards for suppliers are included, so that a business which would experience hardship if required to continue to supply the company can apply to terminate a contract
- bringing in a new restructuring plan which will be binding on particular classes of creditors in some circumstances
- bringing in various temporary COVID-19 easements, for example by allowing companies to hold closed AGMs, conduct business and communicate with members electronically
Some of the measures are not available to financial services firms and contracts.
There are various temporary changes to ease the administrative burden on companies. Many filing deadlines are extended automatically, and the Companies House website usefully summarises the position in the news item on Gov.uk. Note though, that as some COVID-19 easements are introduced, others are now expiring. The usual process for companies applying for voluntary strike off resumed on 10 September 2020. And from 10 October 2020, the compulsory strike off procedure restarts for companies which are believed no longer to be carrying on business or in operation. The suspension of directors’ liability for wrongful trading was also temporary, covering the period until 30 September 2020. Companies House general COVID-19 guidance is here Coronavirus guidance for Companies House customers.
If you have concerns about the outlook for your company, or financial viability of your customers, we are happy to provide further advice.