Government Consultation Papers and Response
Since the date of writing this article (the "Article"), the Corporate Insolvency and Governance Act 2020 (the "Act") has come into force on 25 June 2020, reflecting the Department for Business, Energy & Industrial Strategy’s intentions to protect as many businesses as possible from falling into administration or insolvency as a result of the Covid-19 pandemic.
As predicted by the Article, the Act temporarily removes directors’ personal liability for wrongful trading (but not for fraudulent trading). The Act also provides for the: i) possibility for companies experiencing financial distress as a result of the pandemic to apply for a moratorium which, if granted, allows for a temporary suspension of a company’s debt obligations, subject to certain exclusions; and ii) temporary suspension of termination clauses in supply contracts with a view of ensuring continued supply to companies attempting to rescue their business as a going concern. Moreover, there is a temporary suspension of statutory demands and winding up petitions for eligible companies. The Act also provides for various arrangements and restructuring options and flexibility around the strict requirements for conducting annual general meetings. In addition, extensions have been granted to timeframes for various filing obligations.
It must be noted however, that certain entities (subject to exemptions) are generally excluded from benefitting under the Act, such as institutions providing financial services and businesses carrying out regulated activities under the Financial Services and Markets Act 2000. As a general rule, collateral security charges arising under a financial collateral arrangement will continue to be enforceable even during the moratorium. There will, however, be a restriction on granting securities for companies that have been granted a moratorium.
The effects of the provisions introduced by the Act are temporary. However, they may be subject to extension by virtue of the powers given to the Secretary of State to enact further, secondary legislation at their discretion. As it currently stands, most measures (save for those with retroactive affect) are expected to last from the entry into force of the Act until at least 30 September 2020.
This material was first published by Thomson Reuters Limited, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in Practical Lending and Security Precedents (2020) and is reproduced by agreement with the Publishers.