The Corporate Insolvency & Governance Act 2020 came into force on 26th June2020.
There are helpful government factsheets:
If you have any worries about it, you should speak to your legal advisers.
Its overall purpose is to give “struggling businesses a formal breathing space to
pursue a rescue plan.”
This breathing space will last from 1 March to 30 September 2020. Some aspects of the legislations can be extended for a further period, if the government decides it is necessary.
One important aim of the Bill is to protect a Director from personal liability for any deterioration in his/her Company`s financial position during the specified period.
Another is to protect a Company from Creditor pressure – such as winding up
petitions – unless it has not been affected by Covid-19.
A third significant change enables a Company to obtain a moratorium whilst its Directors look for ways out of its financial predicament. Although the Directors remain in control, they must work with a Monitor, who has to be a Qualified Insolvency Practitioner.
The moratorium is for 20 days initially, but it can be extended for a further 20 days without Creditor consent, or up to one year with Creditor consent.
It must be a good move to encourage Directors to find ways to overcome the difficulties caused by the pandemic. Hopefully, if they need to, they will seek to refinance, either as part of a re-structure, or even as part of a plan to make a merger or acquisition.
It is less clear how well the protection from winding up petitions will work. It could stop Creditors obtaining essential monies they need from their Debtors. A winding up petition used to represent a practical and effective means of compelling a business to settle uncontested debts. This will be hard to do in future when you need to establish the Debtor`s business is not affected by Covid-19 for it to be lawful.
All businesses need to be particularly vigilant about their Debtor book. You probably were already, but this change should emphasize it really is a critical part of your Company`s activities.
It will be equally important to track how often the moratorium is used by Companies to save themselves from liquidation, and start a rebuilding process.
If you have to use it, you will need to develop a robust plan, and produce evidence of effective actions you have taken. You should remember that your plan and your actions will have to be acceptable to Creditors after the moratorium period has ended.