With the unprecedented events of the last few months resulting in economic uncertainty and highly volatile trading conditions, practical steps have been attempted to ultimately keep businesses afloat.
One such measure, which received royal assent on 25 June 2020, is the Corporate Insolvency and Governance Act 2020 (the Act). It aims to give businesses and their directors some breathing space during the Coronavirus pandemic allowing them to focus on continuing to operate.
The Act provides for both changes regarding insolvency and prevents winding-up petitions being presented against companies unless the reason for insolvency can be evidenced as unconnected with COVID-19.
Although the majority of the Act's provisions came into force from 26 June this year, temporary measures will have retrospective effect from the 1 March 2020, helping to cover the key period affected by the health crisis.
The temporary measures involve the suspension of wrongful trading provisions and restrictions on winding up petitions. These were employed to remove the threat of directors' personal liability for the worsening of a company's financial position during this period, when the full impact of Coronavirus has made forecasting so difficult. The Government has also attempted to encourage more consensus to avoid aggressive creditor action.
Permanent provisions of the Act, include a new statutory moratorium, a new restructuring plan and the protection of supplies of goods and services.
The new moratorium provides for the majority of companies, excluding those already subject to current or recent insolvency procedures and some financial and insurance organisations, to be given some breathing space to explore rescue or restructuring options.
Under the restructuring plan measure, any business that finds themselves in financial difficulty can propose a new restructuring plan, which allows them to compromise certain creditors or class of members.
The Act also provides for termination clauses in supply contracts and that any provision in a contract for the supply of goods or services ceases to have effect where a company becomes subject to an insolvency procedure.
Here at Fosters Solicitors our team of Insolvency and Restructuring Lawyers have a wealth of experience and knowledge to assist you in relation to any legal query or matter you may have - including helping you to navigate these new changes to legislation. Please call us on 01603 723799 or complete our online enquiry form for straight talking, commercial advice.