- Corporate Insolvency and Governance Bill: Impact on Lenders
Corporate Insolvency and Governance Bill: Impact on Lenders
Corporate Insolvency and Governance Bill: Impact on Lenders22nd May 2020 - Published by Kuits restructuring & insolvency team
The Corporate Insolvency and Governance Bill seeks to introduce a new moratorium procedure enabling companies to get a moratorium in a much wider set of circumstances than presently available under the Insolvency Act.
A company will be able to get a moratorium if it is or is likely to become insolvent – this is much wider. The company will remain under the control of its directors, with input from a monitor. The moratorium can last from between 20 business days up to a year.
In respect of lenders, the payment holiday provisions do not apply to liabilities arising under a financial services contract. However, during a moratorium:
- Lenders with a floating charge will not be able to appoint administrators.
- Lenders will not be able to enforce security without permission of the court.
- Floating charges will not be allowed to crystallise.
- Security can only be granted over the company’s property during the moratorium with consent of the monitor, who will only grant the security if the monitor thinks the grant of security will support the rescue of the company as a going concern.
- There may be some restrictions on disposal of properties.
The final provision directly relevant to lenders is very interesting. It provides that a provision in an instrument creating a floating charge is void if it provides for the obtaining of a moratorium, or any preparatory steps, to be an event causing the charge to crystallise, or an event causing restrictions which would not otherwise apply to be imposed on disposal of property by the company, or grounds to appoint a receiver. This does not affect fixed charges, although of course permission of the court will be needed to enforce in those situations.
For further advice, please contact Richard Palmer on 0161 503 2996 or email email@example.com.