The Corporate Insolvency and Governance Bill, which was introduced on 20th May 2020, is a welcome development that will deliver a number of changes to UK company law, including enabling companies in the middle of a restructuring and rescue to continue trading.
To help assist companies through the coronavirus pandemic, the Bill contains permanent and temporary provisions. Some of these reforms reflect a number of provisions contained in a European Commission Directive from November 2016. While others have been in consultation for some time, originally outlined in a March 2018 consultation, albeit with some significant changes.
The Bill contains a variety of temporary changes to prevent winding up petitions and statutory demands, combined with the temporary suspension of wrongful trading provisions—allowing directors to continue trading without the threat of personal liability. Furthermore, the Bill will allow companies to delay annual general meetings until late September 2020 or hold “closed AGMs” online, in turn easing regulatory requirements.
What changes will it bring?
The introduction of a “company moratorium” will be the most impactful of the three permanent changes to the insolvency regime. This provision will give distressed companies which are viable 20 business days, extendable to 40 or longer by agreement, to pursue a rescue plan. To qualify for the moratorium, a company must be unable to pay its debts and it is likely that a moratorium would result in a rescue of the company as a going concern.
The second new provision in the Bill is a change to existing supplier contracts so that termination clauses do not trigger, and supply issues or price increases cannot be implemented. This means that contracted suppliers will have to continue supplying companies despite the pre-insolvency arrears, unless they are able to demonstrate “hardship” as a result.
The final important aspect of the Bill will enable organisations who are struggling financially, or their creditors, to form a “restructuring plan.” Although it’s similar to a scheme of arrangement, there is one major difference. The “restructuring plan” can also impose the restructure on any dissenting creditors, secured or unsecured, who voted to reject it. But these dissenting creditors cannot be put into a worse position than what the court considers would have been the most likely outcome if the plan was rejected.
What does the future hold?
With Parliament currently sitting, the biggest challenge now is trying to get these changes made as fast as possible. This significant support for the UK economy is being fast tracked through with the aim to enact the Bill in July at the earliest. It is thought that this might not be the end of the reforms to the existing legal framework. We could potentially see a flattening out of global insolvency framework, moving to a fairer, more level playing field.