“Breathing Space” and other support for businesses in the new Corporate Insolvency and Governance Bill

Scott Clair considers some of the key features of the new Corporate Insolvency and Governance Bill.

09 June 2020

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The Bill attempts to ease some of the more immediate pressures on businesses and provides companies with a degree of “breathing space” concerning their creditors. This emergency COVID-19 Bill was introduced on 20 May.

One of the Bill’s key provisions, foreshadowed by Business Secretary Alok Sharma at the end of March, is to suspend the rules on wrongful trading. Accordingly, company directors will not face personal liability, where they otherwise would, in respect of company debts arising out of the company continuing to trade where it is unlikely to avoid going into liquidation. This relaxation of the well-established rules on wrongful trading will apply retrospectively from 1 March until at least 30 June. It is however important to stress that this particular measure will not serve to absolve directors of their other well-established obligations, such as to act in the best interests of creditors in such circumstances. Caution should therefore be exercised in making the decision to continue to trade where company insolvency is reasonably in prospect.

Companies will also be protected from statutory demands and from winding up petitions until the end of June.

The motivation for this particular temporary measure seems to have arisen from concerns around claims by over-zealous landlords in circumvention of ordinary lease termination rules for non-payment of rent on business premises. There is however one major caveat to these protections, which is that they will not apply where it can be shown that the debtor would have been in the same position with or without the restrictions of the current coronavirus crisis. The onus is on the creditor.

The final major feature of the Bill from a debt recovery perspective is the significant creation of a moratorium to temporarily suspend the ability of companies’ creditors from taking various actions to recover sums due to them from companies which are subject to the moratorium. This provision, intended to be permanent rather than temporary, marks a significant development in the protections available to companies against their creditors. The aim of the provision is to allow companies a degree of “breathing space” to try and turn their fortunes around. There is naturally a concern that such a provision will be utilised in bad faith; however, there is some protection for creditors in that a qualified insolvency practitioner acting as a “monitor” must be of the opinion that the moratorium does have the prospect of rescuing the company from insolvency.

If your company has been served with a statutory demand for payment or a winding-up petition or you otherwise need advice on how to protect your company from its creditors at this time, please contact Scott Clair.

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Scott Clair