The Insolvency and Corporate Governance Act (the “Act”) came into force on 26 June 2020. In response to the COVID-19 pandemic, the Act contains temporary measures (which will apply until 30 September 2020) to flex the current insolvency regime to enable businesses to operate during the Coronavirus (COVID-19) pandemic by relieving creditor pressure and limiting the actions creditors are able to take against businesses. The Act has been in the pipeline since August 2018 with regard to the permanent measures which it contains.
- Moratorium – This provides breathing space for eligible companies to seek the rescue of the company as a going concern. The moratorium will initially be for 20 business days but can be extended by another 20 business days without creditor consent or up to a year with either creditor consent or permission of the Court.
- Contractual termination clauses – The Act prohibits termination clauses in contracts for the supply of goods and services that are triggered when the business enters an insolvency procedure. It will also prevent suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process
- Restructuring scheme – The Act introduces a new restructuring plan which include new “cross class cram down procedures”. This means that the Court can approve the scheme making it binding on creditors even if the creditors do not agree to the plan. There are however safeguards for affected creditors in these situations. This is also available to companies in administration and liquidation.
- Wrongful trading – Notably, this applies retrospectively from 1 March 2020 and temporarily removes the threat of personal liability for wrongful trading for directors while they make their best efforts to continue to trade during the period associated with the COVID-19 pandemic.
- Winding-up petitions – From 1 March 2020, creditors are temporarily prohibited from serving statutory demands and filing winding-up petitions for COVID-19 related debts. Creditors are also prohibited from presenting petitions from 1 March based on other evidence of insolvency, unless the creditor has reasonable grounds for believing that COVID-19 is not relevant to the debt.
- Power to amend corporate insolvency or governance legislation – The Act introduces a temporary relaxation to filing requirements to facilitate the administration of company filings during the restrictions imposed due to Covid-19.
- Meetings and filings – There is temporary flexibility for companies and other bodies to hold Annual General Meetings and other meetings in a safe and practicable manner in response to the pandemic as well as a temporary extension of time periods for filing certain documents at Companies House.
For further information about the Act or any aspect of insolvency, please contact our specialist Insolvency team.