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Corporate Insolvency and Governance Bill
The Corporate Insolvency and Governance Bill (the ‘Bill’) was presented before Parliament on the 20th May 2020 with the second reading expected to take place on the 3 June 2020.
Parts of the Bill have been in consideration for some time while some elements have been introduced in light of the Covid-19 pandemic. The aim of these measures are to assist businesses to continue trading during the pandemic and avoid formal insolvency procedures.
Some of the proposals that affect companies are only in place for a limited period, as follows:
Winding up Proceedings (Liquidation)
Introduction of a temporary ban on Winding up Petitions based upon Statutory Demands served between 1 March 2020 and 30 June 2020.
Further, creditors who wish to present a winding-up petition against a company before 30 June 2020 will need to have reasonable grounds for believing that the Debtor Company’s inability to pay its debts is not a result of Covid-19. The Court will only grant a Winding Up Order if satisfied that this is the case.
The Court is to assume that a director is not responsible for any worsening of the financial position of the Debtor Company during the period between 1 March 2020 to 30 June 2020.
This statutory ‘benefit of the doubt’ is intended to allows directors of companies to make decisions in regard to the company and its future without the danger of personal liability if the company ultimately goes into either liquidation or administration. Directors must pay attention to the fact that they may still incur liability for fraudulent trading or for breach of their duty to consider the interest of creditors where they “know or should know that the company is or is likely to become insolvent”
Meetings and filing requirements
The introduction of temporary relaxations to provide companies and other bodies with greater flexibility in the way in which AGMs and other meetings are held (e.g they will be able hold meetings, and allow votes to be cast by electronic means even if their articles do not allow for this) and to extend the period within which companies and other bodies must hold an AGM. The temporary relaxation is set to be in place from 26 March 2020 to the end of September 2020 in the first instance.
The Secretary of State will also be permitted to make regulations to extend deadlines for the filing of accounts, confirmation statements and registration of charges: accounts, under Part 15 CA 2006; annual confirmation statements under Part 24 CA 2006; notices of related relevant events under CA 2006; and registration of charges under Part 25 CA 2006
There are also some permanent changes which are to be considered as follows:
A new corporate moratorium is proposed to provide businesses with an initial protection of 20 working days to consider a rescue plan. The initial period can be extended to 40 days by directors without creditor consent, with further extensions subject to agreement of creditors or the court. The process will be overseen by a “monitor” who must be a licenced insolvency practitioner. During this period the company remains under the control of its directors and is protected from legal action unless leave of the court is obtained. However, several restrictions on the company’s activities also come into force, such as limitations on obtaining credit or granting security.
New Restructuring Plan
There is a proposal for a new restructuring plan, this will allow for varying classes of creditors to be bound to a restructuring plan approved by the wider set of creditors.
The key differences with a scheme of arrangement are as follows:
- If the court is satisfied that no members of a certain class have “a genuine interest in the company” – so-called “out of the money” creditors – it may order that creditors or members in that class are excluded from any meeting convened to consider the restructuring plan.
- Whereas a scheme of arrangement requires approval by 75% in value and 50% in number of creditors or members in each class, a restructuring plan will not have a majority in number requirement. This means that a restructuring plan is less likely to be undermined by several creditors with low-value debts.
- The proposed s 901G CA 2006 will allow the court to sanction the restructuring plan despite it not having been approved by 75% in value of a class of creditors or members. This will only be possible if (i) none of the members of a dissenting class would be any worse off under the restructuring plan than they would be in the alternative of the restructuring plan not being sanctioned (the ‘comparator’), i.e that they are not financially disadvantaged by the restructuring plan; and (ii) at least one class who “would receive a payment or have a genuine economic interest in the company” in the event of that alternative has voted in favour of the plan by the 75% in value majority.
- Where the restructuring plan relates to debts which were covered by a moratorium which ended less than 12 weeks previously, the court may not sanction the plan if creditors with a moratorium debt or a pre-moratorium debt in respect of which the company does not have a payment holiday are affected and have not agreed to it. A similar change will be introduced in respect of schemes of arrangements under Part 26 as a new s 899A CA 2006.
Supply of good and services
Prohibition of the termination of supply contracts which are automatically triggered on insolvency. What must be noted is that although the company will not be required to pay outstanding amounts due for past supplies, it shall be required to pay for supplies made post insolvency.
Suppliers can apply to the court to terminate a protected contract if it will cause the supplier hardship.
For further information please do get in touch with Grahame Love in the first instance.