UK Corporate Insolvency and Governance Bill: General meetings and corporate restructuring

A new bill, placed before Parliament on 20 May 2020, has been designed to offer protection to businesses and support the UK economy.

The Corporate Insolvency and Governance Bill will allow companies in difficulty to benefit from a range of steps to try and help them survive the Covid-19 crisis and rescue their businesses where possible.

The combination of temporary and permanent measures aims to protect ‘otherwise viable companies’ from collapse.

Moratorium to protect from creditors

The first permanent measure in the governance bill allows companies facing the likelihood of insolvency to apply to the court for a moratorium of 20 business days during which time it would be protected from legal action unless leave to commence proceedings is obtained from a court. This period is intended to allow viable businesses the time to restructure or secure finance to save themselves from insolvency.

The moratorium is to be overseen by a monitor, who must be a licensed insolvency practitioner and who will make a statement that the moratorium stands a good chance of rescuing the company. The directors can apply to the court to extend the initial period by a further 20 business days without the consent of creditors. 

If the creditors consent, then further applications can be made for additional periods of moratorium, up to a year. The monitor is required to make a statement with each application stating that in his view the moratorium is likely to result in the rescue of the company as a going concern.

Restructuring plans

Companies will be able to propose restructuring plans and ask the court to grant approval, even where one or more classes of creditor have voted against the proposal. It is based on the previous arrangement procedure, which is still available, and is intended to prevent minority creditors from halting restructuring plans, provided the court finds it ‘fair and equitable’ to enforce them. This will also be a permanent clause in the legislation.

Supplier termination clauses

The third permanent measure is designed to prevent suppliers from raising prices or halting supplies to a company because it is restructuring or entering into insolvency

Suppliers will be prohibited from stopping supplies because of insolvency alone, provided that the supplies continue to be paid for. If continuing the supply will cause the supplier’s business hardship, then the obligation will not stand, and small supplier companies may also be exempt temporarily during the Covid-19 disruption.

Protection from statutory demands and winding up petitions

The bill proposes a temporary protection restricting statutory demands and winding up petitions for the period from 27 April 2020 to 30 June 2020, or until one month after the date of the bill, whichever is later. During this period, creditors cannot serve a winding-up petition if their debt is unpaid because of reasons relating to the pandemic unless they believe the debtor would have been unable to pay the money owed even if the current crisis had not occurred.

This means that if a business can show that Covid-19 has put them in a worse financial position, then they have the opportunity to avoid insolvency caused by a winding-up petition and will have a period of time to try and recover.

Have you received a winding up petition outside of this time period? Here’s 9 things you need to consider.

Suspension of wrongful trading

Wrongful trading, prohibited under the Insolvency Act 1986, is where a director continues to trade while they knew or ought to have known that there was no reasonable prospect that the company could avoid insolvency. This offence will be temporarily suspended for the four-month period from 1 March 2020 to 30 June 2020. 

Directors will, therefore, be able to continue trading, even where there is uncertainty about the company’s future, without risk of being held personally liable for the company’s debts. The hope is that they will be able to weather the difficulties caused by the pandemic and work out a rescue strategy during this grace period.

It is important for directors to note that their duties to the company and its creditors will remain. If administrators can demonstrate a breach of either fiduciary or statutory duty during this period, it will still be open to them to ask a court to order compensation against a director personally.

Office holders will consider whether directors can be accused of wrongful trading immediately before or after the period of suspension of the offence. For this reason, it is important to be able to show that it was realistic to believe that a company would be able to avoid insolvency. 

Annual general meetings and filing dates

The third temporary measure relates to meetings and filings deadlines. Closed, rather than open, annual general meetings may be held provided a quorum is present. A meeting may be postponed, although it must be held before 30 September 2020, where the meeting was due to be held between 26 March and 30 September 2020. Until the legislation is in place, any annual general meeting that is due to be held should still be officially called, even if it is subsequently postponed.

Businesses can also apply to Companies House for a three-month extension for filing accounts.

In Summary

It is important to remember that until the new legislation comes into effect, companies must still adhere to the current rules and regulations, despite the fact that it is intended to be retrospective once it is enacted.

The law is intended to allow companies breathing space to restructure debts and put in place rescue strategies, to allow directors to continue to act without the threat of personal liability and to ease filing requirements to allow businesses to focus on continuing their operations. The Government’s overall aim is to protect jobs and support the UK economy. 

By taking the opportunity to renegotiate with other individuals and businesses during this time of crisis, it is hoped that more organisations can face the future successfully.

At Lincoln & Rowe we understand the importance of helping our clients keep their business running smoothly. We are able to help with applications for moratoriums and restructuring or negotiations with creditors. We have wide-ranging experience in commercial law and were named as the ‘Best Firm for Commercial Disputes in London’ in the 2019 SME Legal Awards as well as ‘Boutique Litigation Law Firm of the Year’ in the 2019 Global Awards by ACQ5.

If you would like to talk to one of our expert legal team about any queries you may have regarding business contracts, particularly in light on the Covid-19 disruption, contact the author, Dipesh Dosani, or call the team today on 020 3968 6030 and we’ll be happy to help.

The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.

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Dipesh Dosani Partner
Dipesh advises clients on a wide range of commercial disputes including breach of contract, directors’ disputes, shareholder remedies, partnership issues, professional negligence and intellectual property. He is also able to provide clients with advice on all aspects of insolvency as well as investigations including misfeasance, undervalue transactions, preferences, transactions to defraud creditors and wrongful trading.


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