The Corporate Insolvency and Governance Bill (the "Bill") has been laid before the UK Parliament today, Wednesday 20 May 2020.
The Bill, if passed, will implement some significant changes to UK insolvency law and at the same time effect a range of temporary measures to assist with corporate governance during the Covid-19 situation.
Moratorium for protection from creditors
A new corporate moratorium is proposed to provide businesses with an initial protection of 20 working days to consider a rescue plan. The initial period can be extended to 40 days by directors without creditor consent, with further extensions subject to agreement of creditors or the court. The process will be overseen by a "monitor" who must be a licenced insolvency practitioner.
During the moratorium period the company remains under the control of its directors and is protected from legal action unless leave of the court is obtained. However, several restrictions on the company's activities also come into force, such as limitations on obtaining credit or granting security.
New Restructuring Plan
A new restructuring plan proposal will be introduced featuring a "cross-class cram down" feature that can bind dissenting classes of creditors to a restructuring plan approved by the wider body of creditors. It is intended to broadly follow the process for approving an English scheme of arrangement, with approval by creditors and sanction by the court.
In order to implement any cram down the court must be satisfied that the plan is fair and equitable that the dissenting creditors would be no worse off than if the company entered an alternative insolvency procedure.
Winding Up (Liquidation)
The Bill introduces temporary provisions which mean that the expiry of a statutory demand made between 1 March 2020 and 30 June 2020 cannot form the basis of a winding up petition.
The Bill will also prevent the prevent the presentation of winding up petitions for the period 27 April 2020 to 30 June 2020 on all other grounds unless:
"the creditor has reasonable grounds for believing that coronavirus has not had a financial effect on the company, or the facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company."
In determining liability of a director for wrongful trading, the court is to now assume that a director is not responsible for any worsening of the financial position of the company or its creditors that occurs during the period 1 March 2020 to 30 June 2020, or one month after the coming into force of the act, whichever is later.
Supply of goods and services
Permanent changes are to be made to the Insolvency Act 1986 by the insertion of new sections, with the key new provision dealing with the supply of goods and services being Section 233B.
This will provide that where a company has entered a relevant insolvency process, the company's suppliers, subject to certain exceptions, will no longer be able to terminate or vary the terms of their contract on the basis of the company's insolvency.
However, while the company will not be required to pay outstanding amounts due for past supplies, it is required to pay for any supplies made post-insolvency.
Suppliers can seek the authority of the court to terminate a protected contract if it will cause the supplier hardship. Certain defined smaller suppliers are also to be exempted.
Meetings and filings
The measures related to meetings and filings introduce temporary relaxations in the normal requirements for certain meetings and statutory filings. The measures will initially be in force from 26 March 2020 to the end of September 2020.
Companies will be given flexibility to hold any necessary meetings by alternative means such as electronic meeting and voting even if not provided for in the company's constitution.
The Secretary of State will also be empowered to make regulations to extend deadlines for the filing of accounts, confirmation statements and registration of charges.
We will be monitoring the progress of the Bill and any significant amendments tabled and will keep you updated.