Corporate Insolvency and Governance Bill: Welcome, but will it promote turnarounds?
The government recently published its draft Corporate Insolvency and Governance Bill which makes several significant changes to the UK’s corporate and insolvency framework. Its aim is to help companies maximise their chances of survival, protect jobs and support the UK’s economic recovery.
Some of the measures have been anticipated for several years, whereas others have been introduced specifically to help support businesses through the economic impact of Covid-19 and give them “breathing space” to keep them trading while they explore their rescue options.
Once enacted, which is likely to be very soon, the Act incorporates both temporary and permanent measures that offer real prospects for reforming the future of saving businesses, providing they are used for their intended purposes.
Here is a summary of the measures and how they might impact on turnaround and rescue culture:
Changes to the UK insolvency regime
- A moratorium that allows insolvent companies (or those likely to become insolvent) to obtain an initial 20 business days of ‘breathing space’ with scope for extension to pursue a restructuring plan without creditors being able to take legal action, seize assets or enforce debts.
- The introduction of a restructuring plan that operates like a scheme of arrangement to deal with creditors by class as a category of creditor to cram down debt and/or impose the plan on dissenting creditors providing 75% of the class approve the plan.
- A change to supplier termination “ipso facto” clauses in supply contracts to ensure continuity of supplies and services during the insolvency and restructuring process.
- The suspension of wrongful trading to allow businesses to keep trading without the threat of personal liability for directors. All other directors’ duties remain in force.
- The suspension of creditors’ ability to issue statutory demands and winding-up petitions when a company hasn’t been able to pay its bills due to Covid-19.
Changes to the corporate governance regime
- The relaxation of filing requirements and deadlines to account for Covid-19 restrictions.
- The relaxation of regulatory requirements so companies can delay AGMs until late September or hold closed AGMs online.