The Corporate Insolvency and Governance Act 2020 (CIGA) came into effect on 26 June and with it a number of reforms and temporary measures which have created the biggest change to English insolvency law since the Enterprise Act 2002. On 3 July 2020, a new Insolvency Practice Direction relating to the Corporate Insolvency and Governance Act 2020 was also published.
In summary, CIGA provides three key elements:
- Corporate Insolvency Reform (e.g. a new statutory moratorium and provisions invalidating contractual terms that allow for the termination of supply of goods and services in the event of an insolvency process):
- Corporate governance provisions (e.g. temporary easement on dates for companies house filings):
- COVID-19 provisions (e.g. temporary relief for directors and companies from creditor actions / provisions mitigating director liability for wrongful trading during the pandemic and restrictions on the use of statutory demands and presentation of winding up petitions until 30 September 2020)
A summary of some key provisions:
Corporate Insolvency Reform:
- The CIGA introduces a new ‘moratorium’ to give companies breathing space to seek a rescue if creditors are trying to force insolvency. This is a director led process which is overseen by a “monitor” who is an officer of the Court and an insolvency practitioner. The moratorium is focussed on the recovery of a company, rather than realisation of assets and therefore, the insolvency practitioner, acting as proposed monitor, must certify that a moratorium would result in the company being rescued as a going concern. If granted, a moratorium lasts for a period of 20 business days which can be extended for a further 20 days if required. During the moratorium period, there are restrictions on insolvency proceedings, enforcement of security and forfeiture action being taken against the company. Under the moratorium, a company is granted a payment holiday in respect of certain pre-moratorium debts and liabilities but has an ongoing liability to pay newly incurred liabilities. There is a host of eligibility criteria that a company needs to satisfy. A monitor can terminate the moratorium where he / she is not persuaded that the objective of rescuing the company can be met or where directors are not co-operating.
- The CIGA introduces a new ‘corporate restructuring plan’ which allows companies to mitigate the effect of financial difficulties and for courts to bind creditors to the plan.
- Continuing the “rescue theme”, the CIGA prohibits suppliers from relying on termination clauses that allow a supplier to terminate a supply contract, where a customer enters an insolvency process. Suppliers will need to review their contracts and processes and take advice where one of their customers enters an insolvency process before terminating supply of goods or services.
Corporate Governance provisions:
- CIGA introduces temporary easements for Annual General Meetings and the filing requirements for public limited companies:
- CIGA introduces temporary extensions of deadlines for the filing of accounts where the filing deadline falls between 27 June 2020 to 5 April 2021:
- CIGA introduces an extension of the current 14 days deadline from the end of the review period to 42 days for the filing of a company’s confirmation statement.
Further details surrounding the temporary easements can be found here
- CIGA introduces a temporary halt on the use of Statutory Demands and winding up petitions between 1 March 2020 and 30 September 2020 if the debt has arisen due to the coronavirus crisis or where the debtor’s financial circumstances has been impacted by COVID-19. This is a very low threshold for debtor’s to meet – even where the debt pre-dates COVID-19, the Court will stay winding up proceedings if the debtor can show that its finances have been impacted by COVID-19.
- There is no blanket halt on pursuing individual debtors via a bankruptcy petition or statutory demand, during this same period.
- There has been a temporary suspension of the operation of rules relating to wrongful trading. The Court is required to assume, when determining how much a director should be ordered to pay to a company on a finding of wrongful trading, that the director is not responsible for any worsening of the financial position of the company or creditors that occurs between 1 March 2020 – 30 September 2020. There has not been a suspension however of the fiduciary duties that a director owes to a company. A liquidator or administrator can still therefore pursue a director for misfeasance and / or breach of fiduciary duty during this period.
To find out more about the CIGA 2020 and how it may support your company in this troubling and difficult time, contact us at firstname.lastname@example.org