The Corporate Governance and Insolvency Bill was first presented to Parliament on 20 May 2020.
It has received its third reading in the House of Commons and has already had its second reading in the House of Lords, with the Committee stage planned for 16 June 2020. Although it is not yet clear when it may come into force, there is a suggestion that this is expected by the end of June. However there may be a number of changes before this happens, and the actual legislation may be very different. This summary should therefore not be used as a guide.
The Bill is currently intended to implement various practical measures that will seek to assist businesses in financial difficulty generally, although there are also specific temporary measures that will look to address financial problems caused to companies by the current pandemic.
One of these measures is a new Moratorium Process.
This in brief will allow an eligible company to obtain various protections from creditors for a certain period of time and will also provide the company with a payment holiday from certain Pre-Moratorium debts.
To be eligible to apply, the company must not be of a type listed by the Bill and will equally be restricted from being eligible where on the filing date, a moratorium for the company is in force already or has been in force at any time in the prior 12 months, and otherwise if the company is at that time subject to an insolvency procedure (save for certain types of Winding Up Petition), or within the previous 12 months had been subject to a CVA or Administration.
There is no requirement for this procedure to be used only because a company is suffering from the effects of Covid-19 upon its trade but the temporary measures relating to those issues, if they are a factor, will provide certain relaxations within the application and extension process during the ‘relevant period’. This period will be between the date on which the Act comes into force and ending with either 30 June 2020 or otherwise one month after the Act comes into force, whichever is the later.
For an Application to be made, the company will need to file certain relevant documents with the Court. This will include a statement that in the view of the directors, the company is, or is likely to become unable to pay its debts. The procedure will need to be supervised by a Monitor, who will need to confirm that in their view it is likely that a Moratorium of the company would result in its rescue as a going concern.
If a Moratorium is granted, it will initially apply for a period of 20 business days, following which it will either automatically end, or can be extended.
This extension can either be without creditor consent for a further 20 business days, or for longer periods and on more than one occasion with the consent of the company creditors or the Court.
Whilst the moratorium is in place it will in particular restrict certain rights of creditors to apply for an insolvency procedure to be implemented against the company, and other legal process and enforcement measures will be restricted. The moratorium will, amongst other things, also provide the company with a payment holiday from certain of its pre-moratorium debts, and there will be restrictions upon the sums that can be paid to those creditors during the period.
This measure will sit alongside others intended to assist such as the availability of a new compromise and restructuring scheme and a restriction upon termination clauses within supplier contracts in certain specified circumstances.
We can help
We will need to now keep an eye upon the actual terms that do come into effect. If you need some advice from one of our team contact Laura Wright, Head of Corporate Litigation on 01636 594460 or email firstname.lastname@example.org