- Key points from the Corporate Insolvency and Governance Bill
Key points from the Corporate Insolvency and Governance Bill
Key points from the Corporate Insolvency and Governance Bill22nd May 2020 - Published by Kuits restructuring & insolvency team
The Corporate Insolvency and Governance Bill was laid down before Parliament on Wednesday afternoon. It may be subject to some changes, but the first version states that it is designed to make provision about companies and other entities in financial difficulty; and to make temporary changes to the law relating to the governance and regulation of companies and other entities.
The Bill makes provisions to permanently introduce two new procedures: a general “moratorium” and the cross class cram down (which is more likely to be applicable to larger companies). There are also permanent provisions in respect of the use of termination clauses if a customer enters insolvency. There are temporary provisions governing winding up petitions and temporary rules in respect of corporate governance.
This article focuses on the moratorium, as this aspect is likely to be of interest to directors of all companies in the short term.
If passed, a moratorium will be created that is available on a much wider basis than presently. The Moratorium will be available to an eligible company that is or is likely to become unable to pay its debts (this is wider than any moratorium available at the moment).
The explanatory notes to the Bill suggest that the rescue could be via CVA, a restructuring plan (the “cross class cram down”) or simply injection of new funds. They also make clear that there will be “no requirement to have a particular outcome in mind at the time of entry into a moratorium”.
Barring specialist finance companies as set out in the act, most companies will be eligible for a moratorium, unless they have been subject to (or recently subject to) another moratorium or an insolvency procedure (subject to transitional procedures).
A company that is subject to a winding up petition will have to apply to court for an order to obtain a moratorium. The court will only make this order in such a case if it is satisfied that a moratorium would achieve a better result for the company’s creditors as a whole than would be likely if the company were wound up without being subject to a moratorium.
To obtain a moratorium, an eligible company must file a notice to request one containing a statement from a qualified person (a proposed monitor – a licensed insolvency practitioner) that they believe that the moratorium “would result in the rescue of the company as a going concern”.
The initial length is 20 business days. This can be extended by up to 20 business days more (without consent of creditors) or up to a year (with consent of creditors using a decision procedure). An application for an extension to the court can be made.
During the moratorium period, companies get a payment holiday – they will not have to pay their debts apart from those relating to the monitor’s costs, goods or services supplied during the moratorium, rent for periods during the moratorium, wages/salary/redundancy payments, or liabilities under a contract involving financial services.
The practical effect is that no formal insolvency steps can be taken against such a company unless by (or recommended by) the directors. For example, no winding up petition can be presented and qualifying floating chargeholders (i.e. lenders with a debenture) cannot rely on their security to appoint administrators. Other steps such as forfeiture, security enforcement or legal process cannot start or continue with permission of the court.
There are restrictions on payment of pre-moratorium debts and disposals outside of the ordinary course of business.
The legislation makes clear that the moratorium must be publicised in places of business, websites and any document issued by or on behalf of the company.
The monitor is a licensed insolvency practitioner.
The monitor can end the moratorium process if the view is formed that the moratorium will not result in the rescue of the company as a going concern, or if concluded that it has achieved the purpose of rescuing the company.
Monitor’s actions that “unfairly harm the interests of the applicant” can be challenged by permitted applicants: these are a creditor, director, member or any other person affected by the moratorium.
For further advice, please contact Richard Palmer on 0161 503 2996 or email firstname.lastname@example.org.