Significant changes to insolvency law effective from 26 June 2020

The Corporate Insolvency and Governance Act 2020 came into force on 26 June 2020 bringing about the most significant changes to the UK’s insolvency procedures in nearly 20 years.

The Act contains both short-term measures to relieve the burden on businesses of the Covid-19 pandemic and longer-term permanent reforms to the insolvency regime.

Short term measures of the Act include:

1. temporarily removing the threat of personal liability for wrongful trading from directors trying to keep their businesses going through the Covid-19 crisis;
2. temporarily prohibiting creditors from filing statutory demands and winding-up petitions against businesses where the inability to pay is the result of the Covid-19 crisis; and
3. temporarily easing burdens on businesses by extending filing deadlines at Companies House and giving companies and other bodies greater flexibility to hold Annual General Meetings (AGMs) and other meetings in a safe and practicable manner in response to the Covid-19 crisis.

Longer term reforms of the Act include:

1. a new standalone moratorium for struggling businesses will be available outside of a formal insolvency process – this is an extendable 20 working day period that will give businesses breathing space from creditor action while they seek professional restructuring advice and explore options for survival;
2. a new “restructuring plan” process (a compromise or arrangement between a company and its creditors) together with new procedures that allow a class of creditors to be bound by the restructuring plan in certain circumstances, even if they do not agree to it; and
3. prohibition on rights to terminate supply contracts in insolvency-type situations being enforceable in certain circumstances.

A key focus of the Act has been to respond to the Covid-19 crisis as quickly as possible to protect UK businesses. The Government have said they will continue to consider additional measures that may be required in the fallout.

To review the Government’s guidance on the measures contained in the Act, please click here.