The Department for Business, Energy and Industrial Strategy published the Corporate Insolvency and Governance Bill yesterday (20 May 2020). The Bill, when enacted, represents the most significant amendment to the UK’s insolvency laws since the Enterprise Act 2002 introduced the administration regime.
The Government first launched a review of the UK’s corporate insolvency framework in 2016 and concluded its consultation in 2018. Implementation of the reforms were however delayed due to Brexit. The reforms gained new impetus as a result of the unprecedented circumstances faced by businesses as a consequence of the Covid-19 pandemic and the Bill is the outcome of an extremely accelerated drafting process. It contains the Covid-19 emergency measures outlined by the Government in general terms in the last few months as well as the broader insolvency reforms contemplated over the last few years.
We set out below an overview of the key measures contemplated by the Bill.
The Bill gives struggling businesses a formal breathing space to pursue a rescue plan. It creates a moratorium providing a payment holiday from most pre-moratorium debts and restrictions against enforcement action (except with the consent of the court).
- Eligibility. The moratorium is available to all companies (including overseas companies) other than those excluded by the Bill such as banks, insurance companies, investment banks/firms, public/private partnerships and certain types of overseas companies. The moratorium is equally unavailable to companies in insolvency proceedings on the filing date or which had a moratorium in force or been subject to insolvency proceedings within the 12 months preceding the filing date.
- Commencement of the moratorium. The moratorium can be commenced by the directors filing certain documents with the court, including a statement that the company is, or is likely to become, unable to pay its debts and a confirmation from a “Monitor” (see below) that a moratorium would likely result in a rescue of the company as a going concern. Where a company has a winding up petition pending, a court application is required and in granting the moratorium the court will need to be satisfied that the moratorium would achieve a better result for the company’s creditors as a whole without being wound up.
- Appointment of Monitor. The moratorium leaves management in control of the company but requires the appointment of a licensed insolvency practitioner as a Monitor to provide oversight during the moratorium process. The Monitor is required to assess whether a rescue of the company as a going concern is likely and is required to bring the moratorium to an end if it can no longer achieve its purpose.
- Restrictions on activities. Whilst management remains in control of the company during the moratorium period, the company will be subject to restrictions in relation to the incurrence of credit, granting of security and disposal of property.
- Duration. The moratorium is for an initial period of 20 business days but this can be extended by a further 20 business days by the directors and last for a period up to one year if agreed with creditors or a longer period if ordered by the court.
- Scope of moratorium. The restrictions that apply during the moratorium are similar to the administration moratorium and can only be lifted with the consent of the court. The payment holiday does not extend to payment (i) of the Monitor’s remuneration of expenses, (ii) for goods, services and rent during the moratorium period (iii) of wages, salaries, redundancy payments and (iv) of liabilities under contracts/instruments involving financial services.