On 20 May 2020, the Corporate Insolvency and Governance Bill (the “Bill”) was introduced to Parliament. The aim of this Bill is to protect viable businesses from collapse during the COVID-19 outbreak.
The Bill intends to lift regulatory requirements of company meetings and filing requirements between 26 March 2020 and 30 September 2020. There will be more flexibility around when and how meetings are held and enable the Secretary of State to make regulations to extend deadlines for filing accounts, confirmation statements and registration of charges at Companies House. These new measures are intended to reduce pressure on companies that may struggle to hold meetings or meet filing deadlines due to the pandemic.
The Bill will also introduce the following insolvency measures to allow companies to keep operating during the COVID-19 outbreak:
- A temporary suspension on the use of statutory demands and winding up petitions by creditors. These measures intend to prevent aggressive creditor action against companies who are struggling to pay their debts due to COVID-19. During this period, any creditor who wishes to wind up a company will have to show that a company’s inability to pay its debts is not due to COVID-19.
- A ban on termination clauses in supply contracts that engage when a company enters insolvency or a restructuring procedure. This will prevent suppliers from ceasing their supply or varying the contract terms, such as asking for additional payments, while a company is going through a rescue process. There will be safeguards for suppliers if this measure causes hardships and a temporary exemption for smaller suppliers.
- Introduction of measures which will give eligible companies “breathing space” by allowing them to enter into negotiations with creditors for an initial 20 business days (extendable under certain guidelines) during which there will be a suspension on filings for insolvency and legal proceedings.
- Introduction of a new restructuring plan which enables complex debt arrangements to be restructured and supports new rescue finance, which can bind all creditors if sanctioned by the court.
- A suspension of wrongful trading provisions, which stops the threat of personal liability claims to directors for financial losses to a company incurred due to the impact of COVID-19
These new measures will no doubt be a welcome relief to directors who try to keep their companies afloat during the current pandemic, offering options to assist those companies facing potential insolvency and providing reassurances that they can continue without fear of legal ramifications. We will continue to monitor the Bill and update our COVID-19 Information Hub as it progresses.