May 27, 2020 Corporate Insolvency and Governance Bill
The Government has announced the introduction of legislation which aims to provide ongoing support to businesses affected by COVID-19. The Corporate Insolvency and Governance Bill had its first reading in Parliament on 20 May and is due to be debated on 3 June.
Companies cannot rely on the legislation until it has passed all of the parliamentary stages. Nevertheless, an awareness of the proposed measures, which have the support of business bodies including the FSB and the CBI, could help businesses which are looking to define the way forward.
The Bill has three main aims; the first two of which look towards insolvency law whilst the third enables companies to focus on continuing operations. This last measure aims to provide companies and other bodies with a breathing space in respect of company filings and annual general meetings. This will include the ability to hold closed AGMs as well as widening the scope for companies to conduct business and communicate with members electronically. Deadlines will also be extended in respect of the filing of confirmation statements, accounts, registration of charges and changes to company directors or people with significant control.
When it comes to insolvency the measures look to give companies the breathing space and tools required to maximise their chance of survival. This includes being able to continue trading without the threat of directors being held personally liable and measures to protect companies from aggressive creditor action. So creditors will be temporarily prohibited from filing statutory demands in respect of coronavirus related debts and measures will be taken to bind creditors to restructuring plans.
One concern for companies which are going through restructuring or looking to put together a rescue plan is that suppliers may trigger termination clauses, leaving businesses without the supplies which they need in order to continue to trade. As a temporary measure therefore suppliers will be prohibited from triggering such clauses, subject to safeguards being put in place for small business suppliers or those which are themselves facing hardship.
It is worth noting that many of the measures set out in the bill are of a short term nature and in part are retrospective. For example the removal of the charge of wrongful trading on directors lasts from 31 March to 30 June whilst a restriction on winding up petitions applies from 27 April to 30 June.
Commenting on the proposed legislation FSB National Chair Mike Cherry said: “The incoming Corporate Insolvency and Governance Bill will be an important step to helping many small firms during this crisis.”