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Insights // 21 May 2020

The UK Insolvency and Restructuring Regime - All Change?

Partner David Murray, in our Dispute Resolution department and Insolvency & Restructuring team, explains the impact of The Corporate Insolvency and Governance Bill and Restructuring and Insolvency Law reforms on businesses and their owners.

In a process which normally takes many months, even years to deliver, the Government has been forced by the ongoing Coronavirus pandemic to compress its normal procedures and to accelerate the production of The Corporate Insolvency and Governance Bill which was introduced in the House of Commons by Reading MP and Secretary of State for Business Alok Sharma on 20 May 2020.

The Bill, if it becomes law, and it is expected it that it will, possibly even as early as July of this year, will represent the largest overhaul of insolvency law in over 20 years.

The Bill is designed to assist companies during the current challenging economic climate.

The headline changes proposed, insofar as insolvency is concerned, are:

  1. Moratorium – a new free standing moratorium allowing a company in financial distress a breathing space in which to explore its rescue and restructuring options free from creditor action. The directors will remain in charge of running the business but will be overseen by an insolvency practitioner. It is proposed that the moratorium last initially for 20 business days but can be extended by a further 20 days.
  2. Restructuring Plan – A new process, but with elements of Company Voluntary Arrangements and Schemes of Arrangement. In essence allowing struggling companies, or their creditors or members, to propose a new restructuring plan proposal between the company and creditors and members. Importantly it will bind dissenting creditors and members, unless it can be shown that they would be worse off than if the company entered an alternative form of insolvency.
  3. Statutory Demands and Winding Up Petitions - The Government is legislating to temporarily prevent winding-up proceedings being taken on the basis of statutory demands and to temporarily stop winding-up proceedings where COVID-19 has had a financial effect on the company which has caused the grounds for the proceedings.
  4. Wrongful trading – A Director can be personally liable to contribute to the assets of an insolvent company if found liable for wrongful trading, that is trading a company when s/he knew or ought to have known that there was no reasonable prospect of the company avoiding an insolvent liquidation. The Bill proposes a temporary change to the rules for wrongful trading, namely that when the court is considering whether to declare a director liable to contribute to a company’s assets under wrongful trading provisions and are considering the amount to be contributed, it will not take into account losses incurred during the period in which businesses were suffering from the impact of the pandemic.
  5. Termination clauses in supply contracts – A proposal which is likely to have widespread impact. When a company enters a rescue, restructuring or insolvency procedure, suppliers often stop supplying it under a contractual termination clause triggered by insolvency. The Bill proposes measures which will prohibit termination clauses that engage on insolvency or are based on past breaches of contract. This will mean that (subject to certain exclusions) contracted suppliers will have to continue to supply, even where there are pre-insolvency arrears.

Whilst beyond the scope of this summary, the Bill also proposes changes to company meetings and company filing obligations.

The Bill if/when made law will have a wide a ranging impact on the insolvency landscape, at least during the period of the pandemic if not beyond. It is imperative that if a company is facing financial distress it should seek urgent and immediate advice on its options and the obligations placed on its directors.

Our specialist team is here to advise affected parties, including businesses and their owners.

For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800. 

This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.

David Murray

David Murray

Partner, Dispute Resolution & Insolvency

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