On June 26, 2020 the Government’s new Corporate Insolvency and Governance Act 2020 (CIGA) came into force, writes Tim Matthews, corporate partner, Moore Barlow.
CIGA sets out temporary measures in response to the Covid-19 pandemic. Also, there are important permanent reforms to insolvency and company law. Together this represents a major package of new legislation to help navigate troubled times and in this feature Moore Barlow explains how we can help your business get through financially difficult times using CIGA.
CIGA introduces a series of temporary measures intended to give businesses breathing space. These are:
Statutory demands and winding-up petitions suspension
CIGA will prevent statutory demands being served up to September 30, 2020 if used as a way of forcing payment due. In addition, creditors who wish to present a winding-up petition against a company will now be required to have reasonable grounds for believing that the company’s inability to pay its debts is not a result of coronavirus.
Suspension of wrongful trading provisions
The wrongful trading provisions of the Insolvency Act allows a liquidator to apply to the court to obtain payment from a former director if it can be shown that the director incurred further loses when there was no reasonable prospect of surviving as a company. These provisions are now suspended and so will enable directors to take tough action to save a business free of personal liability.
Meetings and company filings
Until at least September 30, 2020 company meetings may be held by “electronic means or any other means” without attendees being together at the same place. Filing deadlines have been extended or suspended, for example annual accounts filings. We can advise you on what type of filings are covered and how much additional time you have.
Permanent changes to insolvency law
CIGA allows directors to take more control in financially difficult times by introducing a totally new level of insolvency procedure to be called a moratorium. This can be called by the directors themselves if they see it as likely that the company may fall into insolvency without further action. It will protect a company from winding-up petitions as well as from supplier termination clauses for a period of 20 business days. It will require the directors to believe that the rescue of the company as a going concern is possible. Moore Barlow can help directors understand the tests required here. With the exception of certain financial services companies, all companies will generally be eligible for the moratorium.
The process for obtaining a moratorium is intended to be simple but does involve the need for a monitor to be appointed who must be an insolvency practitioner (from an insolvency firm or accountants).
The monitor must consider the finances and form a view as to whether it remains likely that the moratorium will result in a rescue of the company. While the moratorium is in place, no other insolvency proceedings can be commenced except by the directors. Creditors (for example banks) will be unable to enforce security over the company’s property and floating charges will not crystallise during this period.
The intention is that directors will be able to re-arrange the company’s affairs (for example a new injection of capital) without the interference of creditors coming knocking. The moratorium can be extended for a period of up to a year if certain conditions are satisfied. The new law also prohibits clauses being used by third parties which allow the supplier of goods or services to terminate or take other action (such as change payment terms) under that contract if a company enters a new moratorium or other formal insolvency procedure.
The temporary measures should protect directors from the initial stress of dealing with aggressive action by creditors. The permanent measures, in particular the moratorium, may provide some further relief whereby directors are more in control as regards both creditors and suppliers.
For further details, contact Tim Matthews on: firstname.lastname@example.org