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The Corporate Insolvency & Governance Bill

View profile for Graeme Weir
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The Government has recently introduced a Bill in Parliament to support businesses in addressing the challenges arising from the impact of Covid 19.

The Bill will amend Insolvency and Company law to support business and consists of six insolvency measures and two corporate governance measures.

The Bill’s three main purposes are:-

  1. To introduce new corporate restructuring tools affording companies the breathing space and mechanisms to enhance their prospects of survival.
  2. To temporarily suspend elements of insolvency law to support directors who continue to trade through the emergency period without the potential threat of any personal liability for “wrongful trading”. (In general parlance – trading whilst insolvent). This Bill additionally seeks to temporarily protect businesses from the threat of creditors seeking to initiate insolvency proceedings, to recover monies owed to them.
  3. Company law and other legislation will be amended to afford businesses respite from their obligation to file documents and arrange Annual General meetings as appropriate. This will enable businesses to focus their resources on their trading activities, rather than their resources being diverted to administrative issues.

Insolvency – Company Moratorium

Businesses will be afforded a breathing space to pursue any required rescue plans. Once the moratorium is sought initiated no legal action can be taken against the company, without leave of the court, during a 20 normal working day period, (which can be extended to 40 working days). If needed, further extensions of time can be secured with the agreement of creditors, or the court. During the moratorium period, its company directors will still have day to day control of the business, subject to a Licenced Insolvency Practitioner overseeing the process.

Termination Clauses

If a company enters into an insolvency or restructuring procedure, or has secured a moratorium the company’s suppliers will not be able to rely on its standard terms to stop supplying the affected company, or vary the contractual arrangements between them.  For example, the supplying company would not be able to seek to increase the price of its supplies. Although the debtor company is required to pay for on-going supplies once it has engaged in the insolvency process, it is not required to pay outstanding amounts for past supplies, pending the completion of the rescue plan. The rationale behind this decision is that in the long term, suppliers and other creditors will benefit if more companies are able to survive the current ‘hibernation’ and eventually repay their debts, via the intended rescue plan. This should help to minimise the volume of businesses being forced to close, if supplying companies simply terminated their relationships.


The Bill makes provision for a new restructuring plan as an option for companies in financial difficulties. The plan will provide an alternative rescue option which will enable complex debt arrangements to be restructured and will allow for the injection of new ‘rescue’ finance.

This would compel any dissenting creditors to be bound by the plan, if sanctioned by the court. (The court will need to be satisfied that those creditors would be no worse off, than if the company entered into an alternative insolvency procedure). The idea being that more companies will not have to engage in a more destructive liquidation process as opposed to the restructuring plan. Such plans should provide a better return for all classes of creditor, preserving jobs and allowing the company to continue trading.

Statutory Demands

Any statutory demand seeking to coerce payment from a struggling business, served  between the period of 1 March 2020 and 30 June 2020 will be considered void. The Bill also restricts the issue of  Winding up Petitions between the 27 April 2020 and 30 June 2020. These temporary measures are intended to prevent creditors acting against business, which may be viable, if it were not for the challenges of Covid-19.

Suspension of Wrongful Trading

The Bill will temporarily remove directors from the threat of personal liability for any perceived wrongful trading during the period 1 March to 30 June. Directors can therefore use their genuine, best endeavours to trade through the period, without the threat of personal liability for wrongful trading arising, should ultimately the company become insolvent and be placed into administration or liquidation etc.

Amendments to Company Law and other Legislation

The Bill will provide companies and other bodies with temporary easements in relation to their obligations to file documents at Companies House or arrange annual general meetings. This will allow them to focus their resources on continuing operations as opposed to dealing with “red tape”.

Conclusions – We are here to help.

Should you wish to discuss any of the implications arising from this Bill, whether you are a business which seeks to rely on the security afforded by the proposed legislation, or you are a creditor owed money from other businesses, please do not hesitate to contact members of the litigation team at Kingsfords via:

Daniel Crook :
Leigh Prebble-Benn:
Graeme Weir: or via direct dial 01233 648406