By Chris Love, Partner and Head of Corporate Recoveries and Insolvency
On Wednesday 20 May, the Department for Business, Energy and Industrial Strategy introduced the new Corporate Insolvency and Governance Bill (“the bill”), which is expected to be implemented shortly.
This bill will enact short-term and long-term changes to company procedure and the insolvency regime.
Changes to company procedure
The bill details a number of changes to the way companies can hold meetings and AGMs:
- Meetings will not need to be held in any particular place
- Meetings can be held electronically, with no need for a number of participants to be in the same place
- Voting can be held electronically or by any other means
- Any company who is obliged to hold an AGM within a certain timeframe now has until 30 September 2020 at the latest to host this.
- Companies are to be given an extension to file their accounts and reports until the earlier date of 30 September 2020 or 12 months following the end of the relevant accounting reference period
- The Secretary of State will have powers to grant further extensions to certain deadlines as required
Changes to the insolvency regime
Winding up petitions:
- A bar on petitions being presented during the period between 27 April 2020 (with retrospective effect) and 30 June 2020 or a month after the bill has come into force
- It would also prevent winding up petitions being presented if they rely on statutory demands issued between 1 March and 30 June 2020
- There are exceptions if the creditor believes that the company was not financially impacted by COVID-19 or that the company would have been unable to pay its debts even if COVID-19 had not financially impacted the company
A moratorium is the temporary delay in the payment of debt.
- A moratorium will be available to allow companies to consider and implement a rescue plan. The company would not have to pay debts falling that are due prior to the moratorium but would have to pay debts falling due during the moratorium
- This is conditional on the process being overseen by a licensed insolvency practitioner acting as a “monitor”. For as long as the moratorium applies, it would prevent the enforcement of security, the commencement of insolvency proceedings or other legal proceedings and forfeiture of a lease
The moratorium will last 20 business days with the possibility to extend for a further 20 business days. Further extension is only possible with the consent of creditors or the Court lasting up to a 1 year from the first day of the initial moratorium
Ipso Facto clauses:
An ipso facto clause refers to provisions within a contract which means it will terminate upon the bankruptcy or insolvency of one of the contractual parties.
- A ban on ipso facto clauses will be introduced, which means that if there is a contractual term allowing a supplier of goods and services to terminate or otherwise when the company goes into insolvency or moratorium, that term is no longer effectual
- The supplier will also not be able to make the continuation of supply during insolvency or moratorium, conditional upon the payment of outstanding debts, the supplier will continue to supply the debtor on the same terms and not be guaranteed payment of arrears
- There are extensive exceptions to these provisions as well as provisions for a payment holiday in the moratorium to protect financial markets
- A new restructuring process will allow companies in financial distress to “cram-down” one or more classes of creditors who will be bound by the restructuring plan even if they do not agree to it
- It will be available in circumstances where a company has encountered or is likely to encounter financial difficulties that are affecting or may affect its ability to carry on business as a growing concern or where a compromise or arrangement is proposed between the company and its creditors or members to mitigate those difficulties
Wrongful Trading Provisions:
- The courts, when assessing whether a director should make a contribution to the assets of a company under the wrongful trading provisions, is to assume that the director is not responsible for any worsening of the financial position of the company between 1 March 2020 and the period that is 30 days after the bill comes into force
If you would like further information on this bill or have any questions as to how this may impact your business please contact us on firstname.lastname@example.org.