The New Insolvency Regime – to help you safely steer your struggling business through COVID times

Holly Brewster takes a look at recent developments in corporate insolvency.  If you are concerned that your company may not be able to meet its debts as and when they fall due, contact our team for advice on 01905 900919 or email holly@bradleyhayneslaw.co.uk

In June 2020, the UK government introduced and passed amendments to existing insolvency legislation, in the form of the Corporate Insolvency and Governance Act 2020 (CIGA) to assist companies to weather the perfect storm of the COVID-19 pandemic.

Some of the measures introduced in June were intended to be short term measures to assist companies to survive through the COVID pandemic. These were retrospective to the beginning of March 2020 and were due to expire at the end of September 2020 but have now been extended until 31 December 2020.

Other measures are permanent reforms designed to move the UK insolvency system from a very creditor-friendly system towards a system that facilitates the rescue of viable companies facing short term difficulties.

Short term help by CIGA for your business

Currently, and until 31 December 2020, a creditor cannot rely on a statutory demand to file a winding-up petition against a company if the company’s inability to pay a debt is due to COVID-19. Therefore, if your business owes someone money, it is not possible for that person to apply to wind up your company for the rest of this year.

From March 2020 until 30 September 2020, the CIGA also suspended the financial liability of directors for continuing to trade while insolvent, protecting directors to some degree from liability for insolvent trading while they attempted to trade their companies through the crisis. However, this has not been extended and company directors should be very careful at this point in the pandemic that they are only continuing to trade if their company can meet its debts as and when they fall due.

If you are concerned that your business may be trading while insolvent, it is important to take legal advice to understand your options. Failure to do so could result in directors being held personally liable for the debts of their company, to prosecution for wrongful trading, other offences under the Insolvency Act and potential disqualification as a director.

Permanent changes by CIGA that could help you now

The new Part A1 of the Insolvency Act 1986 permits some companies to obtain a moratorium on certain debts and actions by creditors, giving your business breathing space within which to regroup and restructure.

Termination clauses in certain contracts for the supply of goods or services are made invalid by new provisions in the Insolvency Act 1986, so that entering into a “relevant insolvency procedure” is no longer grounds for the automatic termination of a contract.

The new Part 26A of the Companies Act 2006 allows the proposal by a company in financial difficulty of a “Super Scheme” to its shareholders and/or creditors, which if approved can result in creditors being forced to accept a reduction in the debt repayable to them if other creditors are in favour of it. This is a much more flexible framework than what has gone before and may prevent companies being hobbled by one dissenting creditor when the rest are in favour of the rescue package.

If you are concerned that your company may not be able to meet its debts as and when they fall due, contact our team for advice on 01905 900919 or email holly@bradleyhayneslaw.co.uk