03
Jun 2020
The New Corporate Insolvency & Governance Bill, What You Ought to Know and How This May Affect You
On Wednesday, 20 May 2020, the Department for Business, Energy and Industrial Staff Strategy (BEIS) introduced the new Corporate Insolvency & Governance Bill (“the Bill”) which is expected to have its second reading on 3 June 2020. It is expected that the Bill is unlikely to change significantly given that the Bill has already received widespread consultation before its first reading and it is expected to come into law before the end of June 2020.
The purpose of the new Bill represents the BEIS’s attempts to assist and relieve the burden currently faced by a number of businesses during the COVID-19 outbreak with a view to allowing businesses to focus their efforts on continuing to operate through this challenging pandemic.
At the time of publishing this article, the Bill currently introduced and the comments made upon the same have not yet come into force and will be introduced in due course, which is expected within the next coming weeks. As ever, Chadwick Lawrence LLP are keeping up to date with the latest developments and please do continue to follow us on Social Media for more published notes or upcoming legal developments which may be of interest.
Key Points
A few key points to note in respect of the Bill are as follows:-
- The Corporate Insolvency & Governance Bill applies in the corporate and not personal insolvency context;
- The Bill is designed mostly to be temporary in nature and some measures adopted in the Bill place restrictions on certain periods which are not likely to be permanent but may be subject to change pending the Government’s further views surrounding COVID-19;
- The restrictions contained within the Bill will apply to all Creditors/Debtors and are not solely restricted to landlords or commercial tenants; and,
- Some of the provisions contained within the Bill have not been created in response to the COVID-19 pandemic but have been previously discussed and proposed for a number of years and these provisions will likely remain as permanent provisions of the Insolvency Act 1986 and the accompanying 2016 Insolvency Rules, irrespective of COVID-19.
Scope of the Bill
The Corporate Insolvency & Governance Bill legislates in 3 designated main areas which are identified as follows:-
- Corporate insolvency reform;
The Bill provides new provisions to assist in attempting to rescue financially distressed Companies insofar as implementing a new Statutory Moratorium process, a new restructuring plan procedure and provisions invalidating contractual provisions in contracts for the supply of goods and services which are triggered by insolvency proceedings. - Corporate Governance Proceedings;
The Bill also intends to introduce temporary easements on the present filing requirements and annual general meetings which will allow temporary measures to include more flexibility around how and when annual general meetings are held and extensions to deadlines for filing accounts, registration of charges / debentures, confirmation statements and other event-driven filings, such as filing to confirm a change in a Company Director(s) or person with significant control.
Guidance in respect of these measures are outside the scope of this note. - COVID-19 Provisions which aim to provide relief for Directors / Companies in respect of Creditor action which is taken against debts which are due and owing, likely to be as a result of the COVID-19 Pandemic;
The Bill proposes to restrict Creditor action taken against Companies in respect of restricting the presentation of Statutory Demands and/or Winding-Up Petitions during the ‘relevant period.’ A further article will be published separately to provide guidance in respect of these provisions.
The Bill also provides provisions for mitigating Director liability for wrongful trading during the pandemic which is also outside of the scope of this article.
Introducing the Moratorium Period
One of the most anticipated insolvency measures now introduced in the Corporate Insolvency & Governance Bill is the ability for Companies experiencing financial distress to apply for a Company
Moratorium. This proposed change to the insolvency regime is intended to be a permanent fixture to the present Insolvency Act 1986 and the accompanying Insolvency Rules 2016, rather than a
temporary measure arising from COVID-19.
The new Bill now allows for Companies to apply for a Moratorium Period which attempts to prevent Company creditors from taking enforcement action against the Company for a specified period. The Moratorium Period is designed to provide Companies with much needed breathing space in order to explore restructuring options and the focus of the Moratorium has been designed with a view to rescuing and restructuring a Company under the required supervision of a designated Monitor.
The Moratorium Period applies to all incorporated Companies registered in the UK under the Companies Act 2006 in England, Wales or Scotland, any unregistered Companies that can be wound up pursuant to Part 5 of the Insolvency Act 1986, overseas Companies that are otherwise eligible in accordance with the Insolvency Act 1986 and Limited Liability Partnerships.
Exclusions to the ability to apply for a Moratorium Period apply to financial services, and a complete list of those eligible and exempt from applying for a Moratorium Period are set out in the Bill.
Furthermore, a Company will also excluded from eligibility to apply for a Moratorium Period if it is subject to or was previously subject to a Moratorium or an insolvency procedure meaning that a Company will be ineligible if one of the following criteria are met:-
- On the filing date, a Moratorium for the Company is already in force;
- On the filing date, the Company is subject to an insolvency procedure;
- At any time during the period of 12 months ending with the filing date, a Moratorium for the Company was in force; or
- At any time during the period of 12 months ending with the filing date, the Company was subject to an insolvency procedure.
Entry Process for Applying for a Moratorium
The Moratorium must be proposed by the Company Director(s) and can be commenced either by an out of Court filing or a Court Order following an Application to Court.
In general terms, the Director / Directors who wishes to obtain a Moratorium will need to complete a Notice seeking a Moratorium Period which is accompanied with the following; a Statement from the proposed Monitor (generally speaking a Licensed Insolvency Practitioner appointed to oversee the Moratorium Period) who is a person qualified to act and consents to do so, a Statement from the proposed Monitor that confirms that the Company is an eligible Company within the meaning of the Bill, a Statement from the Director / Directors that in their view the Company is or is likely to become unable to pay its debts and therefore insolvent, and finally a Statement from the proposed Monitor that in the Monitor’s view a Moratorium for the Company would likely assist in resulting in the rescue of the Company as a going concern.
You will note, as above, that Moratorium Periods are restricted for those Companies who are subject to insolvency proceedings or exempt whereby during the period of 12 months ending with the filing date, the Company was subject to an insolvency procedure. Therefore if there are any outstanding insolvency proceedings such as a live Winding-Up Petition presented against the Company, or the Company is an overseas entity, the granting of a Moratorium will be determined at the Court’s discretion and based on the evidence put forth by the Director(s) and the Monitor.
If a Moratorium Period is granted, the Company must inform potential lenders of more than £500 that the Moratorium is in place and failure to do so may result in sanctions or invalidation of the Moratorium Period.
What does the Moratorium Period seek to achieve?
The Bill proposes that the Moratorium will last for an initial period of 20 business days, which will begin with the first business day after the day on which the Moratorium comes into force. Once the first 15 business days of the initial period of the Moratorium have expired, the Bill allows Directors to apply to extend the Moratorium for a further 20 business days but a further Application will need to be lodged with the appropriate Court, which sets out the reasons for extending the Moratorium Period, which will include:-
- A Notice that the Directors wish to extend the present Moratorium Period;
- A Statement from the Directors that in their view the Company is, or is still likely, to become unable to pay its pre-Moratorium Debts;
- A Statement from the Directors that any Moratorium debts or pre-Moratorium debts for which the Company does not have a payment holiday have been paid or otherwise discharged; and,
- A Statement from the appointed Monitor that in the Monitor’s view, it is likely that the Moratorium will still result in the rescue of the Company as a going concern.
If the Company / Directors seek to extend the Moratorium Period beyond 40 business days, approval must be obtained by the Companies Creditors and even if the Creditors consent to further extending the Moratorium Period, the Moratorium Period cannot be extended longer than 1 year from the first day of the initial Moratorium Period.
Therefore, a Moratorium Period will terminate when the initial, or any subsequent period, expires without extension and will come to an end if the Company is placed into a formal insolvency procedure such as Liquidation, Administration or CVA.
The Bill also places obligations on the Monitor whereby the Monitor must terminate the Moratorium by filing a Notice with the Court if the Monitor is of the view that the Moratorium Period is no longer likely to result in the rescue of the Company as a going concern, and/or, the Monitor consider that the objective of rescuing the Company as a going concern has been achieved, and/or, the Monitor considers that the Company is, or will be, unable to pay any of its Moratorium debts or pre-Moratorium debts of which the Company does not have a payment holiday, and/or, the Monitor considers, by reason of a failure by the Director(s) to provide the Monitor with the required information, that the Monitor is unable to properly carry out its functions and obligations placed upon it as required within the Bill.
How will a Company Moratorium affect me?
As discussed above, the introduction of the Moratorium Period is designed to allow Companies breathing space to explore restructuring possibilities with the guidance of an appointed Monitor, i.e. a licenced Insolvency Practitioner, and generally speaking whilst a Company is in a Moratorium Period, it will not be obliged to repay debts arising from any obligations incurred from the start of the Moratorium until its expiration. The Moratorium will also prevent any Creditor action being taken against a Company by way of insolvency proceedings during the Moratorium period, prevent the enforcement of security over the Company’s property, prevent the repossession of goods in the Company’s possession (which are subject to finance), and will prevent the commencement or continuation of legal processes which are likely to include legal proceedings against the Company except those which relate to Employment Tribunal cases.
What next?
Therefore, whether you are a Company seeking a Moratorium Period or a Creditor affected by a Moratorium Period, it is advisable to seek early advice from either a Legal Representative or a Licensed Insolvency Practitioner (or combination of the two) to assist and guide you through the process given that further guidance is likely to be expected when the Bill comes into force over the next coming weeks.
The Corporate Recovery and Insolvency team at Chadwick Lawrence offer a realistic commercial solution to all your business and personal financial affairs.
With varied experience and expertise in all aspects of both corporate and personal insolvency our team, who work very closely with Licensed Insolvency Practitioners, can offer you a strategic answer to solving and re-structuring your financial affairs in a reliable and cost effective manner that suits your needs.
If you would like to receive some further information please call 0113 225 8811 or e-mail zoeallen@chadlaw.co.uk to discuss your matter further.
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