Corporate Insolvency and Governance Act 2020

In what’s being heralded as one of the most significant insolvency reforms in decades, the UK government has thrown many thousands of struggling businesses a lifeline.

Officially entered into force on 26 June 2020, the Corporate Insolvency and Governance Act 2020 has brought about the most sweeping changes to the UK’s insolvency framework since the Enterprise Act of 2003.

Spurred by the catastrophic impact of the Covid-19 crisis, the government accelerated the introduction of the Act and brought it into law as quickly as possible. The intention being that businesses struggling with the economic implications of the Covid-19 crisis would benefit from several new support measures.

However, it is important to note that much of the changes brought about by way of the Corporate Insolvency and Governance Act 2020 are permanent in nature. Even when the Covid-19 crisis is behind us, legislation regarding interactions between creditors and businesses facing financial difficulties will be transformed indefinitely.

The new legislation in its entirety is exceptionally complex and contains many caveats. This is why we strongly advise seeking qualified legal advice at the earliest possible stage if you have any questions or concerns as to how your business may be affected. No major decisions should be made on the basis of any summarizations of the Act available online.

Three Key Areas of Permanent Reform

The Corporate Insolvency and Governance Act 2020 focuses primarily on three major permanent reforms – the introduction of a new pre-insolvency rescue and reorganization procedure, a ban on the operation of termination provisions (ipso facto clauses) and a moratorium.

While some of the provisions will be temporary in nature for the benefit of companies facing difficulties due to the Covid-19 crisis (like restrictions on presenting winding-up petitions), others will bring significant changes to insolvency law in the UK on a permanent basis.

The new moratorium proceeding will be unsuitable for many organizations, due to the requirement to pay amounts falling due in the moratorium and all financial indebtedness. However, it may give some businesses room to manoeuvre whilst it considers a CVA or other restructuring, where the lenders are supportive.

The ipso facto provisions represent one of the biggest changes to existing insolvency law in the UK, which is likely to divide the business community right down the middle. The provisions are designed to restrict the operation of contractual termination and variation triggered by the commencement of insolvency proceedings.

One of the more welcome additions to the scheme of arrangement is the ability to cram-down one or more classes of creditors or shareholders in the restructuring plan. Under the legislation, difficult judgment calls will need to be made by the courts to determine what is and aren’t fair.

For more information on any of the above or to discuss your company circumstances, book your obligation-free initial consultation with Aristone Solicitors today.

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Litigation - Civil and Commerical

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