Corporate Insolvency and Governance Act 2020 (CIGA) and other COVID related reforms: Key provisions

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Here we give an overview of the Corporate Insolvency and Governance Act 2020 (CIGA) and other COVID related reforms, outlining key provisions.

Standalone Moratorium

 Status - In force - PermanentKey features as follows: 

‘‘Debtor in possession’’ process

The directors remain in control of the company during the moratorium, which is overseen throughout by a ‘‘monitor’’. This mechanism is designed to facilitate company rescue and is not intended to be a gateway to formal insolvency proceedings. 

Role of the monitor

The monitor will be a licenced insolvency practitioner whose duty is to protect all creditor interests and to support the integrity of the moratorium, by ensuring that the moratorium remains likely to result in the company’s rescue throughout the process. The monitor’s consent will be required for certain acts, including granting security and disposing of assets. Any creditor may apply to court to challenge the monitor’s conduct if the monitor has ‘‘unfairly harmed’’ the applicant’s interests.


Upon entry into the moratorium, the company obtains the benefit of a payment holiday for certain pre-moratorium debts, and has a window (initially 20 business days) whereby it cannot be pursued for such sums, or be subject to any legal proceedings.  The directors can unilaterally extend this period for an additional 20 business days, and any further extension (up to one year) is subject to creditor consent. The court may also extend the moratorium for as long as it sees fit.

Debts not subject to a payment holiday

Payments for goods/services supplied during the moratorium, and sums due under contracts entered into during this period, remain payable, such as rent. 

Amounts due under a financial contract are also not suspended, and a company will remain liable to make these payments (e.g. of capital and interest) during the moratorium.

Entry into the moratorium

This is done by filing relevant documents at court for most English companies, or by an application to court for overseas companies or those subject to a winding-up petition. Entry requires the monitor to confirm the moratorium is likely to result in the rescue of the company as a going concern.

Other key provisions of the moratorium include: 

  • creditors are restricted from enforcing security, and the company cannot take on further debt without the monitor’s consent;
  • floating charges cannot crystallise; and 
  • provisions within contracts providing for a moratorium to be an insolvency event are void.

Effect of moratorium upon subsequent insolvency proceedings

Where a company enters formal insolvency proceedings (e.g. liquidation/administration) within 12 weeks of the moratorium ending, certain debts, such as rent, the monitor’s expenses, goods/services supplied during the moratorium and financial service contracts (but excluding accelerated debt) achieve super priority status, and will rank only behind fixed charge holders upon a company’s insolvency.


Lenders can take comfort from the fact that the moratorium must be brought to an end if the monitor forms the view that it will not result in the company’s rescue. However, as this is a director controlled process, lenders will only be notified after the company enters the moratorium.

As security enforcement is restricted and floating charges will not crystallise during the moratorium, lenders should factor this into their credit approval processes. However, it is likely that entry into the moratorium will be an event of default under a financial contract (remember, these contracts are excluded from the moratorium provisions) which will enable a lender to accelerate its debt. If the borrower cannot pay, the monitor must bring the moratorium to an end, thereby enabling the lender the ability to enforce its security.

Unsecured lending accelerated during the moratorium will not have super priority status upon insolvency, and so lenders cannot accelerate their debt during the moratorium to benefit in this manner.

Moratorium carve-outs mean it is unlikely to be a suitable tool for companies with capital market arrangements and complex financial structures – the moratorium is aimed primarily at SMEs and the mid-market. 

As companies will still have to make payments under financial contracts, use of the moratorium will likely require lender support.

The Loan Market Association has stated that it will not amend any of its documents to take CIGA provisions into account. However, lenders should review insolvency-related events of default in their facility agreements to ensure they expressly capture the new moratorium.

Winding up petitions and statutory demands

Status - In force- Temporary until 31 December 2020. Key features as follows:   

No winding-up petition can be presented on the basis of a statutory demand served between 1 March 2020 to, as of now, 31 December 2020. Further, no creditor may present a petition on the grounds that a company is ‘‘unable to pay its debts’’ if coronavirus has had a ‘‘financial effect’’ on the company.
Winding up petitions will be void if presented between 27 April and 31 December 2020, unless it can be proven that coronavirus has not had a financial effect on the debtor company. Further, any winding up petition presented upon the basis of a statutory demand will be void.


Creditors contemplating petitioning for a winding up should be wary of whether a company has been affected by COVID-19.  Evidence so far suggests that demonstrating COVID-19 has had a financial effect on a company will be a low bar to satisfy. Creditors will not be able to use the threat of statutory demands to pressurise companies to pay as they cannot be used as a basis for winding-up orders. Creditors petitioning for a winding up will likely incur both court fees and time costs with a successful outcome unlikely. Alternatives to winding-up should therefore be explored by creditors, who should seek to arrange commercial agreements with the borrower. Failing this, administration is a possibility, as are other restructuring and rescue mechanisms, such as the standalone moratorium and the new restructuring plan. Lenders should consider how the debtor company’s directors would respond to any of these proceedings, and the impact this might have on its priority.

Restructuring Plan (Part 26A Companies Act 2006)

Status - In force- Permanent. Key features as follows:

This will allow financially distressed companies to propose a restructuring plan as a rescue option, with the ability to bind dissenting creditors to the proposals if the court believes such creditors would not be worse off under the ‘‘relevant alternative’’(i.e. formal insolvency). This ‘‘cram-down’’ ability is a new creation under UK insolvency law. To date (6/11/20), there have only been two Restructuring Plans sanctioned by the courts – Virgin Atlantic and Pizza Express.


Use of this tool is likely to be confined solely within the upper-market due to the costs involved – SMEs are therefore unlikely to take advantage of this procedure. Where it is used, secured creditors and lenders run the risk of being ‘‘crammed down’’ if the court feels  the restructuring plan  provides at least equal returns for the dissenting creditor than under the ‘‘relevant alternative’’ – lenders may therefore be exposed to continued credit risk in such an event, and, unlike under a company voluntary arrangement (CVA), even secured creditors will be bound by the decision.

Wrongful trading relaxation

Status - 26 November – 30 April 2021. Key features as follows:

Risk of liability for wrongful trading arises when directors ought to know there is no reasonable prospect of avoiding insolvency unless directors take every step to minimise the loss to the company’s creditors. CIGA originally suspended the wrongful trading provisions of the Insolvency Act 1986 retrospectively from March until September 2020. This relaxation has now been reintroduced, and will last until 30 April 2021. This is designed to allow companies to make use of the government’s various loan and other support schemes which have also been extended into 2021, without fear of incurring liability by continuing to trade and accessing fresh liquidity.


This provision reduces the risk of directors having no option but to enter into a formal insolvency procedure, which may have allowed a number of companies to restructure and become financially viable, for the benefit of their creditors. On the other hand, some companies may have continued to trade beyond the point of no return, which may increase default risk – some Office for Budget Responsibility estimates believe the Bounce Back Loan Scheme may reach a 40% default rate. Despite the government guarantees attaching to these loans, lenders should review their security and priority positions for high risk borrowers.
In practice, this relaxation is not thought to have had a significant effect on directors’ decision making, especially as directors have remained liable for breaches of their director duties under the Companies Act 2006 and other provisions of the Insolvency Act 1986 throughout the pandemic.

Ipso facto clauses / termination of supply provisions

Status -In force - permanent. Key features as follows:

CIGA introduced provisions which restrict suppliers’ ability to terminate supply or ‘‘do any other thing’’ in relation to a contract for the supply of services or goods, as a result of a customer’s insolvency. Such clauses are known as ‘‘ipso facto’’ clauses, and these have now been prohibited by CIGA. Unless a supplier falls within an exemption, it cannot terminate a supply contract for insolvency related reasons. However, there are exclusions where these clauses form part of a financial services contract, and insurers, banks and investment firms are also excluded. 

These reforms will also apply to existing contracts entered into before the coming into force of the legislation.
This represents a permanent change to the UK insolvency framework. However, certain provisions will only apply on a temporary basis, including a ‘‘small entity’’ carve out, exempting small suppliers from complying with the legislation until the end of March 2021. 


Due to the exclusions, secured creditors and lenders will not be prevented from enforcing their security or terminating financial commitments upon a borrower entering into an insolvency event, which will include administration, a CVA, the new moratorium, liquidation and the new restructuring plan.
Given the retrospective nature of these provisions, suppliers should review their commercial contracts to assess whether there is a risk that the legislation will nullify any such clauses with at risk customers, and take appropriate mitigating steps.

Suppliers should consider whether to terminate the arrangement before a customer enters a relevant insolvency event, as well as exploring the options open for reducing payment periods, and tightening debt collection measures.

‘‘Prescribed Part’’ increase to £800,000

Status - In force - Permanent. Key features as follows:    

For all insolvencies commencing on or after 6 April 2020, the prescribed part portion of money raised from realising floating charged assets created after 15 September 2003 was increased from £600,000 to £800,000. This pot of finance is ringfenced for unsecured creditors who would otherwise receive nothing upon a company’s insolvency.


This will reduce the pool of money available for floating charge holders upon a company’s insolvency. Floating charged lending will therefore require careful scrutiny, and combined with the introduction of the crown preference (detailed below), taking fixed security where possible will become a priority for lenders. Asset based lenders in particular are likely to reduce the amount of funds they are willing to lend as a result. 

Outlook for lenders: Other significant changes

Business interruption (BI) insurance - FCA test case decision

Status - Appealed: Decision expected late 2020/early 2021. Key features as follows:    

The FCA brought a test case to the High Court to resolve uncertainty over insurers’ liability to pay out under their BI policies. The court’s ruling (largely) in favour of the policyholders has removed the need for policyholders to resolve fundamental contractual disputes with their insurers on an individual basis.  The insurers appealed to the Supreme Court, which concluded hearing appeals towards the end of November – a judgment is expected by the end of 2020/early 2021. One head of the insurers’ appeal is that the High Court’s judgment effectively rewrote insurance policies – that in some instances there was no causal connection between cases of COVID-19  and businesses closing, and that many losses attributable to business interruption were due to the government lockdown measures, and not the pandemic itself.


Each particular policy still needs to be considered against the ruling to determine insurers’ liability – some insurers, such as Hiscox, have already demonstrated reluctance to pay out to customers. Roughly 370,000 policyholders are thought to be affected by the test case. Businesses with suitable insurance policies forced to close during the pandemic will stand to gain roughly £1 billion, possibly saving a significant number of viable businesses from collapse.  Lenders should assess if, and how much, their borrowers can expect to receive from their insurers as a result of this pending decision.

Crown Preference

Status - Comes into force 1 December 2020. Key features as follows:    

HMRC will become a secondary preferred creditor for VAT, PAYE and employer NICs. R3, the trade association for UK insolvency professionals, predicts that this will remove £1 billion worth of floating charge finance from the available pool of money to companies. Assessed HMRC taxes, such as corporation tax, will continue to rank as an unsecured claim.


HMRC will gain priority ahead of floating charge holders and unsecured creditors upon a company’s insolvency. This will reduce the amount of money for an insolvent business’s other creditors (save for fixed charge holders), likely to be SMEs and small trade creditors. Lenders may look to pass on the increased risk attaching to floating charge finance with higher lending costs to borrowers. 

Retrospective effect

As this change will apply to historic unpaid taxes and existing finance agreements when it comes into force, lenders should consider reviewing their security position, including analysing a borrower’s regular payments to HMRC to assess the likely reduction in realisations they will receive upon an insolvency, if they are concerned about the company’s financial situation.

Points of action

Tax reporting

If there is any risk of insolvency, the borrower’s tax position will be a significant concern, and lenders may request borrowers to provide ongoing representations as to their tax position and frequent reporting, as well as requiring companies to set aside a capital reserve upon an agreed trigger event to cover such liabilities. This will increase loan management obligations, the cost of which may be passed on to the borrower.


Lenders with floating charges over inventory may be able to improve their security by requiring that inventory can only be released upon the lender’s express instruction – this should improve the likelihood of the charge qualifying as a fixed charge.

Plant and machinery

Lenders should look to take a chattel mortgage over plant and machinery, which will transfer title of the charged assets to the lender until the debt is repaid.

VAT Changes 

Key features as follows:

HMRC have allowed businesses to defer VAT payments due between 20 March and 30 June 2020. Companies which made such deferrals have the option to spread their payments over F/Y 2021/22, and may choose to spread repayments over 11 instalments, rather than paying in full by 31 March 2021. There are no penalties/interest charges for making the deferral.

The 15% VAT rate cut for the hospitality and tourism sectors has been extended, and will now run until 31 March 2021. The 100% business rate relief for tourism, retail and hospitality also expires on 31 March 2021.

Landlord recovery mechanisms

Key features as follows:    

Landlords are prevented from forfeiting leases to recover unpaid rent during the ‘‘relevant period’’, which has now been extended until 31 December 2020. Further, the restriction on the use of the Commercial Rent Arrears Recovery (CRAR) procedure on commercial tenants to enforce unpaid rent is also prohibited (save for specific circumstances) until the end of the year. 


Landlords will only be able to commence CRAR proceedings on their tenants where there is at least 276 days’ worth of rent outstanding on or before 24 December 2020. This rises to 366 days’ worth of rent for notices of enforcement served from 25 December 2020 (these time limits effectively cover three and four quarters’ worth of rent, respectively).

During the relevant period, tenants, whilst still liable for rent, cannot be evicted for non-payment, however forfeiture remains possible for other breaches of lease. These measures, together with the extension to the restrictions on winding up petitions, will protect corporate tenants struggling to pay rent at the expense of landlords. Lenders and banks should expect landlords to approach them for waivers and payment deferrals. Lenders should therefore carefully consider their security and priority ranking upon the insolvency of any borrower landlord,  and should consider to renegotiate their position accordingly.

For the remainder of 2020, landlords will have little room for manoeuvre in pursuing tenants for unpaid rent, however interest on outstanding rent will continue to accrue, and landlords will also be able to pursue any former tenant under an authorised guarantee agreement for the current tenant’s obligations. Further, if possible, landlords will be able to draw upon a rent deposit for any unpaid sums.

Coronavirus Job Retention Scheme and the Self Employment Income Support Scheme

Status - 1 November – 31 March 2020. 

Key details    

The CJRS has been amended as follows:

  • The CJRS will now run until 31 March 2021, for all parts of the UK
  • Employees will receive 80% of their current salary for any hours not worked, up to a maximum of £2,500 per month.
  • Employers will be able to use the scheme for employees for any amount of time and shift pattern, including furloughing them full-time.
  • There will be no employer contribution to wages for hours not worked, with employers only asked to cover National Insurance and employer pension contributions for any hours not     worked. This will represent just 5% of total employment costs for the average claim.
  • The CJRS will be reviewed in January 2021 to assess whether economic conditions allow for employers to increase their contributions.

The SEISS has been also been amended (as of 5 November 2020), with the third grant (covering November 2020 to January 2021) being calculated at 80% of 3 months’ average trading profits. This will be paid in a single instalment, capped at £7,500.

Government funding measures

Applications open until the end of January 2021. To be amended by ‘‘Pay as You Grow’’ scheme, which will allow borrowers to extend repayment under the BBLS for 10 years. Businesses will be able to move to interest only payments for 6 months on 3 occasions. Taking advantage of these terms will not impact a borrower’s credit rating.
The BBLS has also been amended to allow businesses who borrowed less than their maximum (i.e. the lower of £50,000 or less than 25% of their turnover) to top-up their existing loan.
Government guarantees under the loans also extended from 6 to 10 years.

  Applications approved (1) Total lent (2) Details
Bounce Back Loan Scheme 1,336,320 £40.2 billion Applications open until the end of January 2021. To be amended by ‘‘Pay as You Grow’’ scheme, which will allow borrowers to extend repayment under the BBLS for 10 years. Businesses will be able to move to interest only payments for 6 months on 3 occasions. Taking advantage of these terms will not impact a borrower’s credit rating.
The BBLS has also been amended to allow businesses who borrowed less than their maximum (i.e. the lower of £50,000 or less than 25% of their turnover) to top-up their existing loan.
Government guarantees under the loans also extended from 6 to 10 years.
CBILS 73,094 £17.16 billion
CBILS 623 £4.57 billion
Future Fund  745 £770 million

Dates to look out for and final thought

  • 31 December 2020 – End to the restrictions on:
    • Winding-up petitions and statutory demands
    • Forfeiture for non-payment of rent and the use of CRAR
  • 31 January 2021: Deadline for applications for Government loan schemes
  • 31 March 2021: 
    • CJRS scheme expires
    • 100% Business rates relief for retail, hospitality and leisure expires in England
    • Reduced VAT rate of 5% for retail, catering and accommodation expires
    • Deferral of VAT: Deferred VAT payments during FY20/21 no longer payable on 31 March – businesses can opt to repay over 11 instalments until January 2022.
  • 30 April 2021: Relaxation of wrongful trading liability ends

CIGA and the other coronavirus-related legislation provides the option for the government to extend and modify the various financial packages and support measures outlined in this note. As demonstrated throughout the pandemic, the above measures have been amended and updated on a regular basis, often without forewarning. Please therefore liaise with the Restructuring team on a frequent basis for updates on the applicable law, and how this will impact upon our clients going into 2021 and beyond.


(1)  As of 26 October 2020 - Deloitte
(2) As of 26 October 2020 - Deloitte

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