Government’s Corporate Insolvency and Governance measures given Royal Assent
Following its initial introduction to Parliament in April, the government has today received Royal Assent introduced the Corporate Insolvency and Governance Bill, which will put in place a series of measures to amend insolvency and company law to support business to address the challenges resulting from the impact of COVID-19.
The Bill consists of six insolvency measures and two corporate governance measures.
The insolvency measures will provide vital support to businesses to help them through this period of instability.
Business Secretary Alok Sharma said: “This is a particularly challenging time for businesses right across the UK, and we are doing all we can to support them through this period. Our proposals have been widely welcomed by business groups. The Bill will help companies that were trading successfully before the COVID-19 emergency to protect jobs and put them in the best possible position to bounce back.”
The corporate governance measures will introduce temporary easements and flexibility to businesses where they are coping with reduced resources and restrictions.
This Bill will do this through introducing a new moratorium to give companies breathing space from their creditors while they seek a rescue; and prohibit termination clauses that engage on insolvency, preventing suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process.
Today’s announcement will also introduce a new restructuring plan that will bind creditors to it; enable the insolvency regime to flex to meet the demands of the emergency; and temporarily removing the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency.
The government will also be able to temporarily prohibit creditors from filing statutory demands and winding up petitions for coronavirus related debts as well as ease the burdens on businesses by enabling them to hold closed Annual General Meetings (AGMs), conduct business and communicate with members electronically, and by extending filing deadlines.
Jonathan Geldart, Director General of the IoD said: “Directors have significant legal obligations, and this Bill provides some reassurance that those who act responsibly won’t be caught out by the insolvency system. It’s crucial that directors are able to sustain their organisations and the people who rely on them during these difficult times.”
FSB National Chair Mike Cherry said: “The incoming Corporate Insolvency and Governance Bill will be an important step to helping many small firms during this crisis. The measures will immediately go some way to mitigate some of the problems small businesses are facing, such as the relaxation of wrongful trading rules which will allow directors of struggling companies to continue trading without fear of legal repercussions. The company moratorium, filing extensions and voiding of statutory demands are particularly important for smaller businesses, it is important that these provisions continue for as long as is necessary.”
What does this law do?
This law will do three things:
- introduce new corporate restructuring tools to the insolvency regime, to give companies the breathing space required to maximise their chance of survival
- temporarily suspend parts of insolvency law, supporting directors to continue trading through the emergency without the threat of personal liability for wrongful trading, and to protect companies from creditor action
- amend Company Law and other legislation to provide companies and other bodies with temporary easements on company filings and Annual General Meetings
Will these measures apply across the UK?
These measures will be applicable UK-wide.
The new corporate restructuring tools, and the temporary suspension of parts of insolvency law, are in some respects devolved in Scotland and are fully transferred to Northern Ireland.
The measures on Annual General meetings and company filings apply to the whole of the United Kingdom.
How will this help companies?
These measures will support business to address the challenges resulting from the impact of coronavirus (covid-19).
They will provide vital support to companies that would be viable if not for the pandemic, to help them through this period of instability where they are coping with reduced resources and restrictions.
There is widespread support for the measures in this Bill, including from the relevant professions and business groups.
Are these measures right for my business?
The moratorium and corporate restructuring tools are designed for businesses who are facing short-term financial difficulties.
If your business has been facing deep-rooted, longer-term financial struggles, you may want to consider other options.
Won’t these measures be costly?
The impact assessment estimates that the three permanent changes to the UK insolvency framework will result in net benefits to business totalling over £1.9bn in today’s prices.
Who will the law apply to?
The law applies to all of the main incorporated forms, with some exclusions for financial services.
What protections are in place for creditors and suppliers?
There are several safeguards in place to ensure creditors and suppliers are themselves protected from hardship, and to encourage the Bill’s proper use.
There are 33 offences in the Bill, but the Bill does not only rely on offences and sanctions to achieve fairness for creditors.
The moratorium will require an independent monitor to ensure that the company abides by the rules of the moratorium. The monitor must be a licenced insolvency practitioner.
What are the timeframes?
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 last until 30 September 2020.
The measures on company filing deadlines, Annual General Meetings and General meetings will last until the end of September.
These measures can all be extended by regulation if this is deemed necessary.
The other measures are permanent.
How long is the proposed moratorium?
The moratorium, designed to give businesses formal breathing space to pursue a rescue plan, initially lasts 20 business days, but can be extended to 40 with the permission of the Court.
Where can I find more information?
Factsheets are available on Gov.UK: https://www.gov.uk/government/publications/corporate-insolvency-and-governance-bill-2020-factsheets
FRC guidance on company filings and AGMs: https://www.frc.org.uk/document-library/corporate-governance/2020/company-filings-and-agms-updated-q-a