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Corporate Insolvency and Governance Act 2020: extension of temporary measures to further support business

Insights / 25-09-2020 / London

Certain temporary measures introduced in the Corporate Insolvency and Governance Act 2020 (‘CIGA’) were extended on 24 September 2020. These extensions coincide with the announcement of additional economic measures to support the economy through the pandemic. The economic measures announced by the Chancellor, Rishi Sunak, include the extension of the cut in VAT for the hospitality and tourism sector until 31 March 2020, companies’ deferred VAT payments not having to be paid in one lump sum and companies having longer to pay back government loans as well as the introduction of a new Job Support Scheme from November.

CIGA

As the UK enters a further period of enhanced measures to attempt to prevent a second significant spike of Covid-19 infections, the Government has announced that certain temporary measures brought into law by CIGA will be extended. The announcement was expected following a similar announcement in Northern Ireland earlier this month and in reaction to the enhanced restrictions introduced by the government this week to save lives.

CIGA, which received royal assent on 25 June 2020, has instigated the most fundamental change to the restructuring and insolvency landscape in England and Wales in over thirty years. CIGA introduced both permanent measures (extension of restrictions on the effectiveness of contractual insolvency termination provisions, a statutory moratorium and a new restructuring plan) and temporary measures (suspension of wrongful trading liability, restrictions on winding-up petitions and the relaxation of certain corporate governance requirements). CIGA aims to provide businesses with the flexibility and breathing space they need to avoid insolvency and to continue to trade and restructure. Some of the temporary aspects introduced by CIGA, which were due to expire in Great Britain on 30 September 2020, will now be extended.

Extension of Temporary Measure

  1. Extension of the restrictions on statutory demands and winding up petitions

CIGA places temporary restrictions on the use of statutory demands and the presentation of debt-based winding up petitions during the ‘relevant period’. The end date of the ‘relevant period’ has now been extended until 31 December 2020. Under the current legislation, the Court may only order the winding up of a company if it is satisfied that the relevant ground would have applied even if Covid-19 had not had a financial effect on the company.

Extensions of Temporary Aspects to Permanent Measures

  1. Extension of the relaxation of conditions for obtaining a moratorium

Under the new moratorium procedure, a company may seek protection from creditor action, through a statutory moratorium supervised by a monitor, whilst it seeks to resolve its solvency issues and survive as a going concern. Further to the Government’s announcement, there has been an extension of the temporary relaxation of certain of the eligibility conditions for a company to obtain the benefit of the moratorium until 30 March 2021.

  1. Ipso Facto clauses and the extension of the temporary exclusion for small suppliers

CIGA considerably extended and widened the restrictions on the effectiveness of termination clauses (ipso facto clauses) which allow the right to terminate a contract due to the insolvency of a counterparty. CIGA included a temporary small supplier exception to this restriction. Where a supplier is a ‘small entity’ supplying goods or services to a company that becomes subject to a relevant insolvency procedure during the ‘relevant period’, the ‘small entity’ is exempt from the restrictions on terminating contracts for the supply of goods and services introduced by CIGA. Further to the Government’s announcement, the end of the ‘relevant period’ for the small supplier exception has been extended to 30 March 2021.

  1. Flexibility maintained for holding AGMs virtually

A company, or other qualifying body, with obligations to hold an Annual General Meeting (‘AGM’) will continue to be able to hold such meetings ‘virtually’ until 30 December 2020.

It is important to note that there has been no extension for the temporary measures that relate to the suspension of liability for wrongful trading. Directors will therefore have to carefully consider their potential personal liability for wrongful trading again from 1 October 2020. For further details on wrongful trading, please see our previous article here.

These extensions under CIGA follow on from the recent extension of the protection of commercial tenants contained within the Coronavirus Act 2020, which will now remain in place until the end of the year. As well as protecting businesses who would be at risk of eviction for not paying their rent due to the impact of Covid-19, the restriction on the use of Commercial Rents Arrears Recovery by landlords to enforce unpaid rent on commercial leases has also been extended until the end of the year. For further information on the original measures please read our article here.

To better understand the general impact of CIGA and for a detailed explanation of the game-changing measures CIGA has introduced please see our articles Covid-19: Rising to the challenge - The Corporate Insolvency and Governance Bill and Corporate Insolvency and Governance Act 2020: Breathing Space for Distressed Companies and Game-Changing Restructuring Tools.

Ince has an experienced Restructuring and Insolvency team which can help you navigate these challenging times, please contact the Alex Rogan or Julie Killip, the authors of this article, with any questions and we would be pleased to assist.   

Alex Rogan

Alex Rogan Partner

Julie Killip

Julie Killip Partner

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Business recovery, restructuring & insolvency

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