What does the new Corporate Insolvency and Governance Act 2020 mean for your clients? Debbie Cockerton explains all.
The government are trying to get the country back on its feet and people back to work, and although the number of deaths due to Covid-19 are decreasing there is still no vaccine.
The government have given lots of support for businesses, to try to get them through these very difficult and unprecedented times and they have rushed through the Corporate Insolvency and Governance Act 2020. But how will this help your clients?
The Bill received Royal Assent on 25 June 2020 and commenced on 26 June 2020. It creates the largest change to our corporate insolvency regime for more than 20 years and gives distressed businesses the breathing space they need at this challenging time.
One of the key provisions is the introduction of the new role of a ‘Monitor’, who oversees the moratorium period that is introduced. This new role is reserved only for licenced Insolvency Practitioners and the Monitor must supervise the company’s affairs to evaluate if the company can be rescued as a going concern.
This new act introduces a 20 business days renewable moratorium period and, in this period, businesses will be protected from creditor action, which will enable the Directors to seek specialist restricting advice or a rescue. It also introduces cross-class ‘cram down’ to bind creditors, even those creditors that vote against it and the court sanctions the plan as fair and equitable. The duration of the moratorium may be extended in a number of ways and we can offer assistance on this should you require any guidance.
Suppliers are prevented from ceasing service or changing their terms for goods and services that they need to continue to trade, which will ensure that any rescue is not jeopardised. There is protection in place to ensure that payment for these services, which are classed as ‘essential supplies’ are paid and these supplies can be ceased if this causes hardship.
The new moratorium leaves the directors in office and the directors can obtain a moratorium by application to court for a court order, but the company should not have an outstanding winding up petition. In the Covid-19 period, the moratorium can be obtained by the filing method, even if there is an outstanding winding up petition against the company. The directors must file a statement that the company is or likely to become unable to pay its debt.
If a moratorium is obtained, creditors will not be able to petition for the winding up of the company, no resolution for the winding up can be made by the shareholders, no application for an administration may be made other than by the directors, no notice of intention to appoint an administrator by the holder of a qualifying floating charge and no administrative receiver may be appointed.
With regards to the restrictions for creditors on enforcement and legal proceedings, no right of forfeiture can be exercised in relation to premises occupied by the company; no enforcement of security over the company’s property; no repossession of goods and no legal process can be issued or continued against the company or judgements enforced.
However, this does not apply to employment disputes. This is welcome news for struggling companies as it provides a temporary protection from creditors, but it is not good news for landlords and suppliers who are also in need of cash, because it prevents them from putting pressure on the debtor to pay the debt. The moratorium may also be used by companies seeking to reach a compromise with trade creditors who would have otherwise used a Company Voluntary Arrangement (CVA) in order to achieve a compromise at the same time with the financial creditors.
There are some temporary extensions that have been brought in and these are to do with the holding of Annual General Meetings (AGM) and this has been extended and any AGM which should be held between 26 March and 30 September 2020 can be extended to the end of the period, or a later date. The Secretary of State has the authority to further extend, but by no more than eight months.
The need for filing of accounts has also had a temporary extension. It applies where the filing period ends after 25 March to 30 September 2020.
There was also a temporary suspension of Wrongful Trading Section 214 Insolvency Act 1986 which was announced on 28 March 2020 and covered the period of three months from 1 March 2020.
During these difficult times, irrespective of the suspension of wrongful trading, directors will continue to have potential liability during the Covid-19 period and beyond and this can include fraudulent trading, misfeasance, preference payments, breach of fiduciary duty and director disqualification proceedings.
Should any of your clients wish to ask any questions about the moratorium, how they can try and enforce the debt in these difficult times or their directors duties, then just give us a call and we can discuss it over the phone and what the options are.
• Debbie Cockerton is a Partner at DCA Business Recovery.
DCA operate the dedicated ICPA freephone number for all members and we are also able to hold all meetings virtually, which will increase the scope for assisting you. DCA can be contacted on 0800 066 2540 seven days a week, from 8am–8pm.