Corporate Insolvency & Governance Act 2020 – what are the changes?

The Corporate Insolvency & Governance Act 2020 came into force on 26 June 2020. Amongst other things, the Act includes some permanent and temporary measures aimed at supporting businesses through the Covid-19 pandemic. Here’s a summary of the key changes.

Permanent Changes

New moratorium for protection from creditors

• Eligible companies will be entitled to a breathing space of 20 business days to formulate a rescue plan free from creditor actions.

• The initial moratorium can be extended for a further 20 business days without consent and for a period of 12 months with the consent of the creditors or the court.

• During the moratorium:

-     directors remain in control of the company with a licensed insolvency practitioner overseeing the affairs of the company as a monitor
-     the company is protected from creditor action, unless the court’s permission is obtained
-     there are certain restrictions on the company’s activities, such as limitations on obtaining credit and granting security.

New restructuring plan

• A company that has encountered, or is likely to encounter, financial difficulties which affect, or may affect, its ability to carry on business as a going concern, may make an application to use the Plan.

• The Plan requires creditor consent (75% from each class of creditors) and the court’s approval.

• However the court may sanction the Plan, even if a class of creditors does not vote in favour of it (“cross-class cram down”), if it is satisfied the Plan is fair and equitable and the dissenting creditors would be in no worse position than if the company had entered into an alternative insolvency process.

Supply of goods and services

Subject to certain exceptions, suppliers are now unable to terminate their contracts on the basis of their customer’s insolvency.

Please see our article Terminating Agreements with Insolvent Businesses – the New Rules  for more information.

Temporary Changes

Statutory demands and winding up petitions

• These changes apply to all creditors and corporate debtors.

• Statutory demands made against companies between 1 March 2020 and 30 September 2020 cannot form the basis of a winding up petition at any point on or after 27 April 2020.

• There are also restrictions on a creditor’s ability to present a winding up petition between 27 April 2020 and 30 September 2020.

Please see our article New Rules on Statutory Demands and Winding Up Petitions for more information.

Wrongful trading

• In determining any action for wrongful trading the court will assume a director is not responsible for worsening the financial position of the company or its creditors during the period between 1 March 2020 to 30 September 2020.

• There are no changes to the provisions relating to directors’ duties, transactions at an undervalue, preferences, fraudulent trading or transactions defrauding creditors.

Please see our article COVID -19 and Directors Duties for more information.

Meetings and filings

• From 26 March 2020 to the end of September 2020 companies may hold any necessary meetings by alternative means, even if this is not provided for in the company’s constitution. (for example, electronic meetings and/or voting).
• The Act also allows the Secretary of State to extend the time for filing of accounts, confirmation statements and the registration of charges.

If you want any further information on any of the changes detailed in this article please contact Jennifer Bean on 07880 024461 or Wayne Parker on 07767 224112.