The new Corporate Insolvency & Governance Bill (Bill) is currently progressing through Parliament and once passed, promises to introduce both temporary and permanent measures to support the economic recovery of businesses following the pandemic.
The Bill is to serve the following main purposes:
- To introduce new corporate restructuring and insolvency “tools” for companies to maximise their chances of survival.
- To temporarily suspend parts of current insolvency law to support directors through trading during the pandemic.
- To provide temporary easements on company filings and annual general meetings (AGMs) to allow businesses to focus on continuing operations.
One of the new insolvency “tools” is a moratorium which will allow an initial period of 20 business days (extendable to 40 business days or further with consent from creditors or the Court) during which no legal action can be taken against a company without leave of the Court. This is intended to give directors time to consider rescue plans available and raise additional finance where possible.
Perhaps more controversial will be the introduction of a permanent prohibition of insolvency-triggered termination clauses. Such clauses would normally allow a supplier the right to stop or threaten to stop supplying a company if it enters moratorium, insolvency or restructuring procedures. Under the new provisions, a supplier will no longer be able to terminate the contract solely on the grounds of a company’s insolvency. These new rules will not apply where the directors of the company agree to terminate, where the continued supply will cause the supplier hardship, or where upon continued performance of the contract supplies are not paid for when due. There is also a temporary exemption for small company suppliers during the pandemic.
Other reliefs include the temporary removal of personal liability for wrongful trading where directors are trying to keep their company afloat, the temporary allowance for companies to hold closed AGMs and an extension of filing deadlines.
More information regarding each of the new measures and the progress of the Bill can be found on the Government website.
Further reading: Insolvency in the time of Coronavirus.
If you have any questions about the potential impact of the new Bill on your business then please contact BHW’s Corporate and Commercial Department on 0116 289 7000.