The Government’s Corporate Insolvency and Governance Act 2020aims to offer vital support to businesses helping them to address challengesresulting from the coronavirus pandemic
As the UK slowly lifts its lockdown measures, the hospitality industry is now slowly going back to business as life begins to return to normal. However, some businesses may find it difficult to bounce back from this difficult time and as a result, may be forced to shut down operations for good. The Government’s Corporate Insolvency and Governance Act 2020, which has been passed to help businesses maximise their chance of survival, has received Royal Assent making the measures legally binding.
The Bill went through an accelerated parliamentary process and was presented to Her Majesty the Queen for Royal Assent on June 25, which means the measures are now passed as law in one of the most significant changes in corporate insolvency law for nearly 20 years. The Corporate Insolvencyand Governance Bill, which was published on May 20, will provide businesses with corporate restructuring tools to the insolvency and restricting regime, giving companies the breathing space to pursue a rescue plan as a result of this nationwide pandemic. These measures will help support businesses and address the challenges they face from the impact of the outbreak, providing vital assistance through this period of instability as companies cope with reduced resources and restrictions.
The Act introduces a new moratorium intended to provide companies with the flexibility to explore options for survival. The moratorium initially lasts 20 business days but can be extended to 40 with the permission of the Court. The Act aims to protect companies from creditor action by temporarily suspending parts of the insolvency law, so directors can continue trading without the threat of liability for wrongful trading. The Act also amends Company Law and other legislation to provide companies and other bodies with temporary easements on company filing and annual general meetings.
Under the Act, the suspension of wrongful trading will last until 30 September 2020. The ban on creditors from filing statutory demands and winding-up petitions for COVID-19 related debts will also last until 30 September 2020. The measures on company filing deadlines, Annual General Meetings and General meetings will last until the end of September but these measures can all be extended by regulation if this is deemed necessary. The law will help support companies and allow them to continue trading through the crisis. The change in the framework will allow businesses across the UK to benefit from a total of £1.9 billion in today’s prices.
The directors of an eligible company can obtain a moratorium by filing relevant documents at court. Companies are generally eligible unless a) a company is already subject to a formal insolvency proceeding during 12 months before the filing date, b) it has been subject to a moratorium unless the court orders otherwise; or during 12 months before the filing date, c) it has been subject to a CVA or administration (although for a temporary period ending on 30 September 2020 this restriction is lifted to account for the impact of Covid-19). However, financial services companies, including insurance companies and banks, and parties to capital market arrangements are ineligible.
More information about the measures are available at https://www.gov.uk/government/publications/corporate-insolvency-and-governance-bill-2020-factsheets
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