BLM Head of Commercial Litigation, London - partner Stuart Evans considers the Corporate Insolvency & Governance Bill
"The travails of the Business Secretary, Alok Sharma may have pushed the Corporate Insolvency and Governance Bill, which is currently passing through Parliament, down the news agenda, but the Bill contains a considerable amount of new law for businesses and practitioners to add to their insolvency toolkit.
What is the purpose of the Corporate Insolvency & Governance Bill?
It is intended to stem the flow of potential business insolvencies, by giving breathing space to business debtors and their directors and limiting the options of creditors to enforce their debts during the current pandemic.
Will the Corporate Insolvency & Governance Bill be effective?
It remains to be seen how effective these provisions will be. In terms of the moratorium preventing creditors from taking action for a specified period of time, so that a rescue or restructuring package is put in place, this legislation will be permanent. A moratorium may turn out to be a cheaper option than administration, and unlike administration it leaves the debtor in control. This may be a worthwhile option for a company that needs to relieve creditor pressure, provided that it is not abused so as to leave creditors even worse off.
An overview of some of the provisions of the Corporate Insolvency & Governance Bill
In respect of more temporary provisions for the period in which they are in force (currently one month from commencement), there are firstly the restrictions on statutory demands and winding up petitions and the relaxation of the need to seek validation orders until a winding up order is made. These also draw creditors’ teeth, although it is still conceivable for a creditor to wind up a company if it can show that its insolvency was not COVID-19 related. Secondly, we have the relaxation of the wrongful trading provisions, trailed for several months now, where company directors will be assumed not to have been responsible for the deterioration of the company’s solvency position from 1 March 2020 until the end of the statutory period. Taking into account other potential liabilities for, say, breach of duty, and the assumption only applying from 1 March, directors of companies that were beyond saving by 1 March may not get much comfort from it.
Overall, if you have a viable business that would be trading solvently now but for COVID-19, the Bill gives you some options to seek protection from creditors and keep your business going. If your business was beyond redemption before COVID-19, the Bill should not be used as an instrument for abuse or a get out of jail free card. Either way, you should seek professional advice."
Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.