Insolvency Legislative Reforms 2020
The UK Government has for some time been looking at reforming the corporate insolvency regime to allow companies more breathing space to consider their options when facing financial difficulties. The Covid-19 pandemic has fast-tracked these reforms and other legislative changes which have been put before Parliament for approval at the earliest opportunity.
This afternoon Parliament is expected to debate the proposed legislation which, if approved, will then proceed to receive Royal Assent in the next few weeks.
There are three permanent changes in the reform measures:
1. Introduction of a new moratorium
Companies can file or apply to the High Court for a moratorium against creditor action. This will initially last for 20 days but can be extended. Certain pre-moratorium debts must be met in the period, but it can prevent a company facing winding up action for a lengthy period if subsequent extensions are applied for/granted.
For businesses in trouble, this will be welcome legislation; it is, however, likely to result in a shortening in credit periods over time as suppliers experience difficulties and delays in seeing through enforcement action.
2. Roll-out of a new restructuring arrangement
This new arrangement will allow a company in financial difficulty to put forward a restructuring proposal to its creditors under company law whereby different classes of creditors are asked to consider the proposal. Unlike a CVA, the scheme will be binding on secured and unsecured creditors; there is also greater court involvement with the court able to order a meeting of creditors and the court sanctioning the scheme post the meeting taking place.
There has been much discussion online as to how this new arrangement will work in practice. We will keep you updated with any further developments as the legislation passes through Parliament.
3. Widening of essential suppliers in insolvency cases
IT suppliers including hardware and software suppliers, data storage and processing providers, point of sale terminals and website hosts will now be required to maintain supply to insolvent companies, alongside utility suppliers (gas, electricity and water) who were previously required to do so by law.
This has a significant impact for certain suppliers in the IT who will need to review their existing contractual arrangements.
A number of temporary changes to assist with the impact of the Covid-19 pandemic were also announced and include:
1. Temporary suspension of wrongful trading rules
Directors cannot be held liable for worsening the financial position of a company or creditors due to their actions in the period from March to June 2020.
2. Restriction on winding up actions
No new winding up applications will be accepted or heard between 27 April 2020 and 30 June 2020.
3. Filing extensions
Further extensions to Companies House filing deadlines are being proposed to help deal with the impact of Covid-19.
If you would like any further information on these reforms and their applicability to Northern Ireland companies, please contact Gerard Gildernew or Aisling Muldoon on 028 8772 4697.
Gildernew & Co. Ltd have made every effort to ensure the accuracy of the information herein. However, no reliance should be placed on any of the above without seeking independent professional advice.
Posted on June 3, 2020