On 14 May 2020, the Financial Conduct Authority (FCA) published a guidance on the new insolvency and corporate governance measures, designed to help businesses affected by Covid-19, which are expected to be included in the Corporate Insolvency and Governance Bill 2020.
The measures were initially announced by the Business Secretary, Alok Sharma, on 28 March 2020 and the Bill received its first reading on 20 May.
Measures within the Bill include:
• Moratorium during which no legal action can be taken or continued against a company without leave of the court.
• Suspension of ipso facto (termination) clauses. When a company enters an insolvency or restructuring procedure, suppliers will not be able to jeopardise a rescue by stopping or threatening to stop supplying the company. The proposals also ensure that continued supplies are paid for, and suppliers can be relieved of the requirement to supply if it causes hardship to their business.
• Temporary suspension of threat of personal liability arising from wrongful trading for directors who continue to trade a company through the crisis with the uncertainty that the company may not be able to avoid insolvency in the future. All the other checks and balances remain in place.
• Viable companies struggling with debt obligations will be supported to restructure under a new procedure. It allows courts to sanction a plan that binds creditors to a restructuring plan if it is fair and equitable and in the interests of creditors.
The Bill excludes from these measures’ banks, investment firms, insurers, payments and e-money institutions and certain market infrastructure bodies. Firms that safeguard client assets are also excluded from the company moratorium during the coronavirus period and the temporary suspension of wrongful trading provisions.
However, other measures for insolvency and governance contained in the Bill will apply to the above institutions and these include:
• Removing the threat of winding-up proceedings where a debt is unpaid due to coronavirus. It introduces temporary provisions to void statutory demands issued against companies during the emergency.
• Voiding statutory demands issued against companies during the emergency – this is set to apply retrospectively from 1 March to 30 June.
• Allow companies that are required to hold an AGM or general meeting to hold a meeting by other means, even if their constitution would not normally allow it. As a result, directors will not be exposed to liability for measures that need shareholder endorsement and shareholder rights are preserved.
• Further extend Companies House filing deadlines. The Bill allows the Secretary of State temporarily to make further extensions, enabling struggling businesses to focus on the things that matter most while they have reduced resources and restrictions.
The Bill is sponsored by the Department for Business, Energy and Industrial Strategy and has recently begun its passage through Parliament.
If you have any queries surrounding insolvency, please contact Joseph Oates on JMO@cooperburnett.com or 01892 515022.
This blog is not intended as legal advice and cannot be relied upon as such. CooperBurnett does not accept any responsibility for the accuracy of its contents. Government guidelines are constantly changing without notice so please refer to www.gov.uk/coronavirus