News

Covid-19: Corporate Insolvency & Governance Bill

28th May 2020

Covid-19: Corporate Insolvency & Governance Bill

Just under a week ago, more detail on the Corporate Insolvency and Governance Bill arrived.

The Corporate Insolvency and Governance Bill aims to help companies to maximise their chances of survival, protect jobs and support the country’s economic recovery.

It consists of insolvency measures that will support businesses through this period and, where needed, provide new options for company rescue and corporate governance measures, which will give directors more flexibility during the Covid-19 emergency to focus on the things that matter most while they have reduced resources and restrictions.

Property litigation expert Nyree Applegarth summarises the key measures for commercial landlords and tenants.

1. Company Moratorium: The Bill gives struggling businesses a formal breathing space to pursue a rescue plan. It creates a moratorium during which no legal action can be taken against a company without leave of the court. The moratorium seeks to ensure that companies which are struggling as a direct result of the pandemic are given the opportunity to survive.

2. Ipso Facto (Termination) Clauses: When a company enters an insolvency or restructuring procedure, suppliers will often either stop or threaten to stop supplying the company. The supply contract often gives them the right to do this, but it can jeopardise attempts to rescue the business. The Bill will mean suppliers will not be able to be jeopardise a rescue in this way. The proposals include safeguards to ensure that continued supplies are paid for, and suppliers can be relieved of the requirement to supply if it causes hardship to their business. There will also be a temporary exemption for small company suppliers during the emergency.

3. Restructuring Plan: This will support viable companies struggling with debt obligations 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. Creditors vote on the plan, but the court can impose it on dissenting creditors (‘cram down’).

4. Suspension of Wrongful Trading: The Bill will temporarily remove the 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. Liquidators and administrators will not be able to take an action against an insolvent company’s directors for any losses to creditors resulting from continued trading while the wrongful trading rules are suspended. This will remove the pressure on directors to close otherwise viable businesses to avoid potential liability. All the other usual checks and balances on directors remain in place.

5. Statutory Demands and Winding up Petitions (2 measures): The Bill helps struggling businesses by temporarily removing the threat of winding-up proceedings where unpaid debt is due to Covid-19. It introduces temporary provisions to void statutory demands issued against companies during the emergency. This gives businesses the opportunity to reach realistic and fair agreements with all creditors.

6. Annual General Meetings (AGMs): The Bill temporarily allows those companies that are under a legal duty to hold an AGM or GM 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 shareholders rights are preserved.

7. Filing Requirements: Companies are required to make a number of different filings by fixed deadlines at Companies House each year. Missing the deadline automatically results in a financial penalty. Companies House has already done all it can under existing law to offer extensions to those deadlines. Over 50,000 companies have taken advantage of this flexibility already, but they may need more. 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.

If you have any queries relating to property or property litigation, please contact Nyree Applegarth on 07595 657733 or Nyree.applegarth@higgsandsons.co.uk

For help and support with any other personal or business legal issues during the Covid-19 crisis, please call us on 0345 111 5050 or email supportingyou@higgsandsons.co.uk

 

Other news

Contact us

3 Waterfront Business Park
Brierley Hill
West Midlands, DY5 1LX

Email: law@higgsandsons.co.uk
Call Us: 0345 111 5050

Newsletter

Keep up to date with all the latest here.