On 20 May 2020 the Government introduced the eagerly anticipated Corporate Governance and Insolvency Bill to Parliament. The Bill aims to provide greater protection for businesses during and following the COVID-19 crisis. If the bill is enacted in its current form the bill would offer businesses breathing space to consider options for rescue whilst being protected, which would offer businesses the greatest chance of survival.
The bill offers:
- A short-term ban on the service of statutory demands and making of winding up orders. Statutory demands against companies between 1 March 2020 and 30 June 2020 cannot be used as the basis of a winding up petition. Any creditor asking the court to make a winding-up order must show that the company’s inability to pay its debts was not caused by COVID-19.
- A temporary amendment to the rules on director liability for wrongful trading. It will be assumed that Directors are not responsible for losses incurred whilst the company was facing the distress of the pandemic. Directors’ will continue to owe duties during such periods and the Bill when enacted will not prevent liquidators/administrators for bringing claims against them for breach of duty.
- A moratorium of 20 business days for struggling businesses which are unable to pay their debts or likely to become unable to do so, but which are capable of being rescued. The initial period of 20 days can be extended in certain circumstances. An independent monitor will oversee the directors of the company who will remain in charge of the business.
- Where a company enters an insolvency or restructuring procedure contractual termination clauses (and clauses which allow for other things such as changes to payment terms) will cease to have effect. There will be exemptions for certain companies and contract types.
- A new restructuring plan which includes the ability of the courts to bind classes of creditors who vote against it where the restructuring plan is fair, equitable and in the interests of creditors.
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