Corporate Insolvency and Governance Bill: a potential lifeline for struggling businesses

The government have recently announced further details of the new legislation which they plan to implement, to assist companies who are struggling to meet their debts.  Spurred on by the Covid-19 crisis, the government has set out measures to reform key parts of our current insolvency law, by means of the Corporate Insolvency and Governance Bill 2020.

The government say the Bill will:

  • introduce a new moratorium to give companies breathing space from their creditors while they seek a rescue;
  • prohibit termination clauses that engage on entering an insolvency procedure, or entering the new moratorium procedure. It will also prevent suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process;
  • introduce a new restructuring plan for companies in financial distress, which include new procedures that allow a class of creditors to be bound by the restructuring plan even if they do not agree to the plan;
  • enable the insolvency regime to flex to meet the demands of the crisis;
  • temporarily remove the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency;
  • temporarily prohibit creditors from filing statutory demands and winding-up petitions for COVID-19 related debts;
  • temporarily give companies and other bodies greater flexibility to hold Annual General Meetings (AGMs) and other meetings in a safe and practicable manner in response to the pandemic;
  • temporarily ease burdens on businesses by extending filing deadlines at Companies House;
  • allow for some of the temporary measures to be retrospective, giving immediate support to businesses during COVID-19.

This Bill has now completed all its stages in the House of Commons (3rd June 2020) and will now go to the House of Lords for consideration.

The intention behind the new legislation is already being taken into account by the courts.  In a High Court case on 2nd June 2020  (Re A Company (injunction to restrain presentation of petition) [2020] EWHC 1406 (Ch)), the court made an order restraining the presentation of a winding-up petition against a company which had been unable to pay its rent as a result of the Covid-19 pandemic.  In making its decision, the court considered the terms of the Bill in its current form, even before it had been enacted.  The court had a “high degree of confidence” that the relevant parts of the Bill will be enacted in more or less its current form by the end of June 2020.  The court granted an injunction to stop the winding-up order, a decision which it felt was “powerfully supported by the clear policy objectives of the Bill.”

This is likely to be welcome news for some businesses, particularly SMEs who find themselves temporarily ‘cash-flow insolvent’ due to the Covid-19 crisis, but who would otherwise have a healthy order book.

Bartons Solicitors have commercial lawyers who may be able to assist your business.  Feel free to contact us for a no-obligation discussion, to see if we can help.