Corporate Insolvency and Governance Bill – Business Protection

Dear Members,Please see below.

 

Corporate Insolvency and Governance Bill now law.

On 25 June 2020 the Bill received royal assent and became the Corporate Insolvency and Governance Act 2020. The Act has introduced new corporate restructuring tools to help maximise the chances of business survival and provide a breathing space whilst a plan is presented to creditors.

The first new tool introduced is a Moratorium, giving directors time to arrange a rescue plan. During the moratorium no legal action can be taken against a company without leave of court. The aim is to enable struggling companies to survive as a going concern. For example, if a company voluntary arrangement were proposed and accepted by creditors, the company could continue in its current form without the burden of historic debt.

The second new tool is a court-based Restructuring Plan. This enables a company, creditors or shareholders to propose a plan for debts to be restructured and supports the introduction of new rescue finance into the business. The Restructuring Plan is similar to the existing Scheme of Arrangement – but what is new is the concept of ‘cross-class cram down’.Creditors are put into classes, for example, separating out continuing operations from those that are no longer viable. Dissenting creditors can be ‘crammed-down’, which means they are bound by the plan providing the court considers the proposal fair and reasonable. This would mean showing that a creditor class were no worse off than if the company had entered an alternative insolvency procedure.

The Act also introduced the prohibition of termination clauses. In usual circumstances, when a company is subject to an insolvency procedure, a creditor will often seek to rely on provisions in their contract that allow for the termination of the supply of goods or services and to terminate the contract on the ground of insolvency. This type of clause is known as an ipso facto clause.The Act prevents suppliers of goods or services terminating their contracts where a company is subject to an insolvency process or enters into a moratorium. The explanatory notes to the Bill confirm that, where a contract for supply of goods and services contains a termination clause or allows for any other thing, such as changing payment terms, to happen, this will cease to have effect.  It is hoped this will allow essential supplies to continue while a rescue plan is put in place.

These new tools will help directors save businesses where debts have built up over the last few months and trade is taking time to return to the ‘new normal’.acts

 

Alan Clark

alan.clark@carterclark.co.uk

www.carterclark.co.uk

Offices:
Recovery House, Hainault Business Park, 15-17 Roebuck Road, Ilford, Essex IG6 3TU
2 Falcon Gate, Shire Park, Welwyn Garden City, Hertfordshire AL7 1TW

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