Government measures in key jurisdictions 5th edition - Flipbook - Page 157
United Kingdom
Insolvency
Has the
government made
any changes
to insolvency
legislation?
On 25 June 2020, the Corporate Insolvency and Governance Act received royal assent (the Act).
It came into force on 26 June 2020.
The Act introduced changes to the UK insolvency laws in order to address the unique
circumstances arising from the Coronavirus pandemic.
Measures introduced included:
•
Wrongful trading provisions – As we outlined in our previous briefing, the Act will
temporarily relax the threat of personal liability for wrongful trading from company directors
who continue to trade a company through the coronavirus pandemic. The provisions set out
in the Act do not provide a blanket suspension of the wrongful trading provisions. Under the
Act, directors will not be responsible for any worsening of the financial position of the
company or its creditors that occurs during the period 1 March 2020 to 26 November 2020.
Following the lockdown measures announced across the UK in November 2020, the
temporary measures were re-introduced for the period 26 November 2020 to 30 April 2021.
These provisions may help boards where the company is (or was) in financial difficulties and
there is significant uncertainty regarding the businesses’ financial future. It is worth noting
that in theory, a director could be liable for wrongful trading between 1 October 2020 and 25
November 2020, but in reality this would be difficult (but not impossible) to prove.
Whilst directors may not be liable to contribute to the extent the financial position worsens
during these periods, it is important to note that this does not apply to the period before and
after the pandemic will still be able to be reviewed and will not fall under the protections laid
out in the Act. There are likely to be significant challenges “apportioning losses” in this
manner. In addition, directors may still be subject to action for misfeasance and fraudulent
trading claims for director misbehavior during the Covid-19 period. Further, directors can
also still face disqualification. Although these measures have been in force for almost a year
at the date of this briefing, it remains to be seen whether the courts will be sympathetic to
directors during the pandemic or make examples of those who have sought to take unfair
advantage of temporary changes at the expense of others.
•
Company Moratorium – A proposed moratorium which will give struggling businesses a 20businesss day opportunity to consider a rescue plan, extendable by the directors for a further
20 business days or with creditor consent up to a year. The company will remain under the
control of its directors during the moratorium, and no legal action can be taken against a
company during this period without leave of the court.
•
Restructuring Plan – The proposed legislation will introduce a Restructuring Plan, allowing
struggling companies, or their creditors or members, to propose a new restructuring plan
which will provide an alternative rescue option for companies that are suffering financially.
The plan will enable complex debt arrangements to be restructured and will support the
injection of new finance in order to support a rescue.
•
Winding Up Petitions and Statutory Demands – The Act introduced temporary provisions
prevent aggressive creditor action against companies. Under the Act, statutory demands will
not be able to be used as the basis for issuing a winding up petition against a company. This
provision applies to all statutory demands served on any company between 1 March 2020
and 31 March 2021. The provision prevents statutory demands served in this period from
forming the basis of a winding up petition presented on or after 27 April 2020.
In addition, the Act restricts winding up petitions from 27 April 2020 to 31 March 2021, unless
the petitioning creditor has reasonable grounds for believing that the coronavirus crisis has
not had a “financial effect” on the company (i.e. that as a consequence of coronavirus or for
reasons relating to coronavirus, the debtor’s financial position has worsened).
Although no announcement has been made to date, these changes brought in by the Act
have been extended twice since their enactment, and may be subject to further extension
should the UK Government see it fit to do so.
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