Alex Rogan Partner
Corporate Insolvency and Governance Act 2020: Breathing Space for Distressed Companies and Game-Changing Restructuring Tools
The Corporate Insolvency and Governance Act 2020 (the ‘Act’) came into force on 26 June 2020, marking a momentous advancement for the UK’s restructuring and insolvency regime. The UK Scheme of Arrangement now has a supercharged cousin in the ‘Restructuring Plan’, distressed companies can at last avail themselves of a moratorium in order to aid their restructuring, the ability for suppliers to stop supplying companies that have entered a restructuring or insolvency procedure has been greatly curtailed, and other temporary measures have been introduced to help companies surmount the effects of the COVID-19 pandemic. You can read about these game-changing measures in more detail in our article on the Bill here.
The Act has only seen some minor changes during its passage through Parliament, the most significant being:
- The temporary provisions of the Act that had been due to expire on the later of 30 June 2020 or one month after the Bill’s enactment will now expire on 30 September 2020. This includes the suspension of liability for wrongful trading, temporary provisions relating to the moratorium and the restriction on winding-up petitions. The Secretary of State has the power to extend these periods further and to potentially curtail them at an earlier date. This provision helps ensure that if there is a second wave of COVID-19 cases and ensuing restrictions on businesses, the temporary reliefs offered by the Act can continue to apply in order to give businesses the greatest possible chance of survival.
- In respect of the moratorium, lenders will not be able to obtain super-priority status in a subsequent insolvency process as a result of accelerating their debt during, or immediately before, the moratorium. This is a welcome change in that it will prevent lenders accelerating their debt in order to enhance their recoveries as a result of the moratorium, thereby helping ensure the integrity of the process and the protection of other priority creditors.
- Additional protections for pension schemes have also been included in relation to the moratorium. The Pensions Regulator and the Board of the Pension Protection Fund will now have the right to receive notifications from the monitor when the moratorium comes into force, there is a change to the moratorium (including a change of monitor) or the moratorium comes to an end. This gives them the same rights in respect of the receipt of information as the registrar of companies and creditors. The Board of the Pension Protection Fund is also able to exercise a number of rights on behalf of an eligible pension scheme’s trustees or managers as if they were a creditor, including application for a court order during the moratorium period on the grounds that the monitor or directors have harmed their interests.
The passing of the Act into law will provide companies with the necessary breathing space to consider their options and then successfully restructure in light of the new restructuring tools made available under the Act. It is important, in order to increase the chances of a successful restructuring, for companies to engage early with their advisors so that all restructuring and insolvency options can be considered and value can be maximised.
Ince has an experienced Restructuring and Insolvency team which can help you navigate these challenging times, please contact the author of this article with any questions and we would be pleased to assist.
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News / Covid-19: Rising to the challenge - The Corporate Insolvency and Governance Bill
The Corporate Insolvency and Governance Bill (the “Bill”) published on 20 May 2020 represents the most significant development for restructuring and insolvency laws in the UK in nearly 20 years. The Bill, if passed in its present form, provides significant additional firepower to the UK restructuring arsenal, introducing a new restructuring regime that is capable of rising to the challenge of rescuing businesses and maximising stakeholder value in the difficult economic environment ahead.