The New Corporate Insolvency and Governance Act
The Corporate Insolvency and Governance Act received Royal Assent on 25 June after a Government fast-track approach. This was designed to bring help to companies and their directors struggling with the economic challenges of coronavirus.
7 July 2020
The main focus of the Act has been to give businesses flexibility to help them continue trading through the Coronavirus-weakened economy. Here is an overview of the key reforms:
A New Moratorium
The Act has introduced a new moratorium to give struggling companies more time to formulate a rescue or restructure and the majority of companies will be eligible.
Except in certain circumstances, no insolvency proceedings can be instigated against the company during the moratorium period. It also prevents legal action being taken against a company without permission from the court - with the exception of employment tribunal proceedings, or proceedings between an employer and a worker, which do not require permission of the court to commence or continue.
Those excluded from the Moratorium include:
- A company already subject to a formal insolvency proceeding
- A company which, during the period of 12 months prior to the filing date, has been subject to a moratorium, unless the court orders otherwise
- A company which, during the period of 12 months prior to the filing date, has been subject to a CVA or administration (although for a temporary period ending on 30 September 2020 this restriction is lifted to account for the impact of Covid-19)
- Financial services companies, including insurance companies and banks, and parties to capital market arrangements
How to obtain a moratorium
The company directors must file for or apply to court for a moratorium. This will give the company 20 business days to consider rescue options. The moratorium has to be managed by a monitor, who is a licenced insolvency practitioner. They will need to file notices with Companies House during the moratorium.
Extending a moratorium
The moratorium can be extended for a further 20 business days without creditor consent, or for a longer period with creditor consent, by filing relevant statements with the court. It can also be extended further on application to the court. Any extension must be made before the current expiry of the moratorium.
For more information about the moratoriums, see here.
The New Restructuring Plan
The Act also introduces a new restructuring plan sanctioned by the court that will bind creditors to the plan. Directors will still need to meet their filing obligations with Companies House. Late filing penalties will still be applied if accounts are filed late.
A restructuring plan does not take effect until a copy of the court order has been delivered to Companies House. It will then be registered against the company. For more information see here.
The Act also introduces a number of temporary measures
Suspension of Wrongful Trading Rules
The Act temporarily suspends the wrongful trading rule until 30 September 2020 (effective retrospectively from 1 March 2020). This is to give directors the chance to trade during the pandemic without the risk of incurring liability if the company becomes insolvent. The changes are intended to prevent companies from having to pre-emptively file for insolvency to avoid any personal liability risk on the part of its directors.
Prohibiting the Presentation of Winding Up Petitions
The Act temporarily prevents creditors from issuing a winding up petition on the basis of an unsatisfied statutory demand served between 27 April 2020 and 30 September 2020 unless the creditor has reasonable grounds for believing that:
- coronavirus has not had a financial effect on the company, or
- the company would have been unable to pay its debts even if coronavirus had not had a financial effect on it
This is likely to affect commercial landlords who have been in the spotlight for using statutory demands to get tenants to fulfil their rent payment obligations.
Filing Accounts at Companies House
Companies and other types of business registered at Companies House will get more time to file accounts. Companies House has indicated that companies eligible will receive an updated filing deadline automatically and do not need to apply for an extension.
This guidance applies to public limited companies (PLCs) and Societas Europaea (SEs) with a filing deadline between 26 March 2020 and 29 September 2020.
If your filing deadline falls between 26 March 2020 and 29 September 2020, Companies House will extend your deadline to the earlier of:
- 30 September 2020
- 12 months from the end of your accounting period
The filing period for accounts cannot be more than 12 months.
If your filing deadline fell between 26 March 2020 and 26 June 2020, Companies House will extend your deadline retrospectively. For more information see here.
Annual General Meetings
The Act has also relaxed conditions relating to meetings for companies and other bodies, including extending the period for annual general meetings. The relaxation of these provisions will apply from 26 March 2020 until 30 September 2020. See more information here.
Can we help?
If your business is encountering difficulties as a result of the economic downturn, or you need guidance on your obligations under the new Corporate Insolvency and Governance Act please talk to one of our specialist team.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
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