On Wednesday 20th May the UK Government introduced the Corporate Governance and Insolvency Bill in Parliament, putting in place a series of measures to amend insolvency and company law to support businesses to address the challenges resulting from the impact of COVID-19.
The Bill will provide vital support to businesses to help them through this period of instability, as well as temporary easements and flexibility where they are coping with reduced resources and restrictions.
Full details of these proposals, and their application to Northern Ireland legislation is currently in draft form and due to be finalised in the coming weeks.
A summary of the measures outlined within the Bill are highlighted below.
New Company Moratorium
The Bill will introduce a new company moratorium to give businesses breathing space from their creditors whilst they seek a rescue plan. It will provide businesses with 20-business days to consider a rescue plan. This can be extended to 40 business days, with further extensions at the agreement of creditors or the court. Throughout the moratorium period, the company will remain under the control of its directors, but the process will be overseen by a monitor who must be a licensed insolvency practitioner.
Termination Clauses in relation to supply contracts
Permanent changes to the use of termination clauses in supply contracts are included within this new Bill. Practically it will safeguard supplies for a business who has entered an insolvency or restructuring procedure or obtains a moratorium as their suppliers will not be able to rely on contractual terms to stop supplying or vary the contract terms.
The business however would be required to pay for supplies once it is in the insolvency process but is not required to pay outstanding amounts due for past supplies while it is arranging its rescue plan.
This specific measure also supports suppliers and contains safeguards to ensure that they 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.
New Restructuring Plan
For companies in financial difficulty, the Bill will allow them to introduce a new restructuring plan. The plan will enable complex debt arrangements to be restructured and will support the injection of new rescue finance.
The new court-based restructuring plan, modelled on the pre-existing English Scheme of Arrangement, will allow a company to bind all its creditors to it, including groups of dissenting creditors. The final agreement will be signed off by the court.
Creditors will temporarily be prohibited from filing statutory demands between 1 March 2020 and 30 June and winding-up petitions for coronavirus related debts from 27 April 2020 to 30 June 2020.
By introducing new corporate restructuring tools listed above, it will allow businesses breathing space and the opportunity to maximise their chance of survival through this pandemic.
Directors: Personal Liability
The Bill also supports Directors by temporarily removing the threat of personal liability for wrongful trading from company directors between 1 March to 1 June. Directors can operate with confidence and use their best efforts to trade through the coronavirus period without the threat of personal liability for wrongful trading should the company ultimately become insolvent.
All the other checks and duties on directors remain in place.
AGMs, GMs & reporting deadlines
The Bill will temporarily allow those businesses that are under legal duty to hold an Annual General Meeting (AGM) or General Meeting (GM), to hold this meeting by other means even if their constitution would not normally allow it.
The ability to communicate with members electronically as part of this meeting are included in the Bill. As a result, shareholder’s rights are preserved as they are not prevented from exercising their right to vote on resolutions or other matters brought before the meeting, though they may be prevented from voting in person (rather than by post or by electronic means).
The measures relating to company meetings are intended to be retrospective from 26 March so that any business that has already had to hold an AGM in a way that adhered to social distancing measures, but that, as a result, did not meet relevant obligations in their constitution, will have done so in accordance with the law.
Companies who were forced to postpone AGMs which were due to be held after 26 March will be given a limited period after the Bill is passed to hold those AGMs using the new flexibilities.
Filing deadlines have also been extended for 3 types of filing:
Accounts (3-month extension to those who apply.)
Confirmation statements (temporary extension)
Registrations of charges (temporary extension)
In amending Company Law and other legislation, it will go some way to reduce the pressure placed on businesses and provide yet more breathing space. This in turn will allow them to focus on keeping their businesses going in this uncertain time, ensuring that the required data is filed with Companies House within a reasonable time.