The Government has published a new Corporate Insolvency & Governance Bill which changes the options that are available to struggling businesses. The aim is to help companies to survive, safeguard jobs and protect the economy from the damaging effects of COVID-19. This introduces five significant changes to the UK’s insolvency regime. The legislation has seen changes since it came into force in 1986, however these are considered to be the biggest impacting since it was written. 



The changes fall into two categories; temporary measures & permanent changes.



Temporary Changes:

The suspension of the wrongful trading  provisions of the Insolvency Act by introducing an assumption that the directors are not responsible for any worsening of their company’s position during the pandemic.



Restricting the right of creditors to petition for companies to be wound up, where debts have not been paid due to the pandemic. Before the 30 September 2020 no statutory demands may be served & there are restrictions on winding up petitions. This period may be extended.



These provisions will apply for one month after the Bill becomes law, whichever is later. 



Permanent changes:

A new moratorium is to become available to struggling companies which will behave like the administration moratorium, initially lasting 20 days, which can be extended for up to 12 months & is overseen by an insolvency practitioner acting as ‘monitor’. It is envisaged that it will not end with an insolvent event. This replaces the old CVA moratorium which was rarely used because of flaws in its writing which expose the Insolvency Practitioner to liability. Whilst on the surface this appears to be a viable alternative, the inception required court or creditor applications and its continuation are likely to prove cost preclusive for many OMB’s who find themselves in financial difficulty. 



Supplier termination clauses to be prohibited , which results in suppliers being restricted from declining  insolvent companies vital supplies as long as new supplies are paid for.



A new restructuring plan procedure is introduced , replacing the existing ‘scheme of arrangement’ provisions in the Companies Act. It is a largely Court-based procedure, drawing on the US Chapter 11 procedure. 



The moratorium provisions were consulted on in 2016 & largely welcomed by professionals, so much of these changes were already in hand. Whilst this is still in the stages of being brought into legislation, it is anticipated that it will fully come into force by early July 2020. A number of the provisions are retrospective & directors, creditors and their advisors need to consider these when weighing up the options available. 



Only time will tell us whether the changes are sufficient to help struggling businesses to survive or whether they will become obsolete reminders of the pandemic.



All types & sizes of businesses can get into financial difficulties. The restructuring & insolvency options are complex as they need to deal with the users' differing needs. These new provisions create an additional option which our specialist at Harveys can advise upon & help business owners navigate their way to the best outcome.



For impartial, in-depth professional advice please call us on 01635 770941. We are here to help you .