Keith Steven of Company Rescue explores and comments on the new Corporate Insolvency and Governance Act which came into force at the end of June 2020
The new Corporate Insolvency and Governance Act came into force for companies in the UK and Northern Ireland to give distressed businesses breathing space and focus their efforts to ensure they are able to operate post-pandemic.
This becomes the largest change to the UK’s corporate insolvency regime in more than 20 years. So, what has come into play?
New moratorium period
This is an extendable 20 working day period to businesses giving them protection from creditor action whilst they seek professional advice. Companies are thus given a ‘’payment holiday’’ for pre-moratorium debts which have fallen due, either before or during the moratorium period, unless the debts fall within an exclusion i.e. payment for goods or services, wages, the monitors’ remuneration, redundancy pay and rent during the moratorium.
The moratorium period puts restrictions on what the company and its directors can do and limits enforcement actions which creditors can take during the period.
The moratorium is granted to companies which are unable to pay their debts when they fall due, so long as they have a statement from a licensed insolvency practitioner that states the company has a good chance of surviving.
The new role of a monitor
‘Monitors’ refer to licensed insolvency practitioners. The Insolvency Service provides further guidance on their role and responsibilities but ultimately, they must oversee the new corporate moratorium which is introduced and file notices with Companies House during that period. Management remain in control of running the business, monitors just help oversee and work alongside.
Extended suspension of termination clauses
This tool prevents suppliers of a company in an insolvency procedure or under a moratorium, relying on contractual terms to stop supply, terminate or vary contract terms, provided they are paid. They must not be under any financial hardship. This is a great help as it allows businesses to continue to trade if vital services are retained and paid for going forward.
New restructuring plans
A new insolvency process is outlined. It is like a scheme of arrangement. It requires a court sanction that binds creditors to the plan, this enables more debts to be restructured and supports the injection of new rescue finance. Restructuring plans do not take effect until a copy of the court order has been delivered to Companies House where it will then be registered against the company. The plan requires approval by 75% in value of creditors affected (by class). Dissenting classes of creditors will be bound, as long as they are not worse off in an alternative, traditional insolvency procedure.
This new tool has been introduced to give companies the time needed to maximise chances of survival.
Due to the coronavirus pandemic, the new act offers temporary relief until 30 September 2020. The relief is for companies being subject to a winding up petition (restrictions) and from wrongful trading provisions (relaxation) when a business can demonstrate that its difficulties are due to trading conditions brought on by coronavirus. This temporarily suspends parts of insolvency law to support directors amid such a difficult time.
Temporary easements for Annual General Meetings
Permission is granted for AGMs and any meetings in general, related, to be held virtually, to match social distancing measures. This applies to meetings held from 26 March 2020 until 30 September 2020.
Directors, accounts and automatic extensions
Directors still need to meet filing obligations with Companies House and late filing penalties will still be applied if accounts are filed late.
Companies (PLCs) and businesses registered at Companies House have more time to file accounts if eligible, all being done automatically so no extension applications are required. Changes are for public companies with a filing deadline between 26 March 2020 and 29 September 2020.
The legislation gives automatic extensions to companies for confirmation statements, registrations of charges and event-driven filings i.e. changes to company directors.
For those measures which are temporary, they are in place until 30 September 2020 as it currently stands.
Keith Steven remarks, “good to see that the Government is focusing on Company Rescue tools for the insolvency profession to save companies during and (most importantly) after the Covid-19 crash’’.
Find out more about the new bill on the Government site.