On Wednesday 20 May the Department for Business, Energy and Industrial Strategy introduced the new Corporate Insolvency and Governance Bill 2020, the measures are intended to relieve some of the financial burdens on businesses as a result of the Covid-19 outbreak and to allow them to focus on continuing to be operational. The bill had its second reading on Wednesday 3 June 2020, in the House of Commons and is on its way to becoming law.
It has been acknowledged that the coronavirus outbreak has created significant financial stress for many companies, and in an attempt to keep the economy going and prevent otherwise viable businesses in the UK from going under, the Government has temporarily lifted restrictions on the requirements on companies to file accounts and hold Annual General Meetings (AGMs). To keep business going, and to take account of the social distancing rules, there will be an extension for compliance with these statutory requirements to 30 September 2020.
The Bill also:
- Temporarily removes the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency. Further information on this can be found here
- Prevents suppliers from being able to rely on contractual termination clauses or other contract terms to stop the supply of goods or services to a company or to vary the terms of a contract when that customer goes into an insolvency procedure
It is important to note that whilst the Bill still requires secondary legislation before it can come into force, the Court is likely to seek to rely on this Bill now, especially in insolvency cases. Indeed on 2 June 2020, the High Court restrained the presentation of a winding-up petition in the case of A Company (Injunction To Restrain Presentation of Petition)  EWHC 1406 (Ch) because the Corporate Insolvency and Governance Bill 2020 is likely to become law in the near future.
Effects of the Corporate Insolvency and Governance Bill 2020
The Bill will give companies breathing space and allow those who have been faced with insolvency procedures the time to either seek financial assistance or a new restructuring plan. If a company is served with a winding-up petition, it now has the option to file for an initial 20 business day moratorium for eligible companies by filing a Notice or Application to court if it has been adversely affected by a coronavirus. This may be extended by up to 12 months, meaning that creditors may have to wait even longer for their money. If a creditor does present a petition, the court will not make a winding-up order until the creditor demonstrates that the pandemic is not the reason the debtor company cannot pay its debts.
The Government has said that unless the above requirements are met, the company will be protected from being wound up and from the disruption that the petition would otherwise cause. A moratorium is available to companies regardless of whether their inability to pay their debts is coronavirus-related but will usually have a shorter duration and applies to a wider range of creditor actions. There are some sectors which are exempt from the moratorium, which can be found here.
Any company that has been subject to either insolvency proceedings or a moratorium during the previous 12 months will not be eligible for the moratorium in this instance and will need to be overseen by an Insolvency Practitioner who will also be an officer of the Court and will monitor the company’s affairs. During this time, no insolvency proceedings can be commenced except by the company itself and/or the Secretary of State. The Government promises that this provision takes steps to provide safeguards for affected creditors in these situations, however, we are yet to hear further on this.
What does this mean for Debt Recovery?
The Corporate Insolvency and Governance Bill introduction mean that creditors are prevented from presenting a winding-up petition to the court against a company on or after 27 April 2020 on the basis of a Statutory Demand or pre-winder letter which was served between 1 March 2020 and 30 June 2020 and effectively renders any Statutory Demand served between those dates null and void. Whilst it does not prevent the recovery of debts, this does mean that any leverage that we have against a limited company is now limited to court proceedings. Whilst we do not believe that all debtor companies will be adversely affected by a coronavirus, we anticipate that those who are faced with a winding up petition may use it as a reason for non-payment and therefore make this method of debt recovery more difficult and expensive to our clients.
It is worth noting that the Bill does not apply to individual debtors or sole traders.
The aim of the Bill is to give companies greater flexibility as we face this current crisis as a country and a community. It is worth remembering that whilst this may not be great news for creditors, the UK Government has introduced this new legislation to help businesses that are struggling from the economic impacts of coronavirus and is designed to protect otherwise viable companies from collapse during this time.