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Corporate Insolvency and Governance Act 2020 extension

Gateley Legal

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On 24 September 2020 the Department for Business Energy & Industrial Strategy announced an extension of the time period for which various temporary protective measures, first introduced under the Corporate Insolvency and Governance Act 2020 and due to expire on 30 September 2020, will apply.

The extensions to the temporary measures will apply from 29 September and crucially provide for the following:

  1. restrictions on issuing statutory demands and winding-up petitions will continue until 31 December 2020;
  2. enforcing termination clauses is still prohibited (although ‘small’ suppliers will remain exempted from the obligation to supply until 30 March 2021);
  3. companies and other qualifying bodies with obligations to hold AGMs will continue to have the flexibility to hold these meetings virtually until 30 December 2020;
  4. the modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until 30 March 2021. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months. Measures will also ease access for companies subject to a winding up petition.

The Government’s stated aim for introducing these temporary measures is to protect businesses from insolvency and coupled with the other forms of UK Government support, including the Winter Economy Plan announced by the Chancellor of the Exchequer on 24 September 2020 and the extension of the commercial eviction ban, will provide some respite for companies and support the wider economy but as we move into a second phase of the pandemic the time is ripe for businesses to start to adapt and look forward to their long term prospects in a world where coronavirus is likely to be a long term feature in one form or another.

The respite will take the form of restricting creditor enforcement action, preventing suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process, allow shareholders to continue to engage on governance issues remotely and allow companies that have previously been subject to an insolvency process to employ the new moratorium procedure.

The economic balancing act being undertaken by the Government is delicate. The impact on suppliers, creditors and investors could potentially be adverse. Although the temporary measures are focussed on protecting businesses, the measures may inadvertently cause financial distress for suppliers and creditors who are unable to enforce their rights and recover debts owed to them which are in turn required to meet their own obligations. Suppliers, creditors and investors need to maintain dialogue with the businesses to whom they are exposed. They should also separately analyse which of their rights remain unhindered and the potential impact of any debtor action in this interim period.

The breathing space afforded by these measures should be welcomed in the short term. However, companies, directors and creditors will still need to be mindful of their wider duties and obligations to stakeholders. Business plans and anticipated cashflows should be updated and tested on a regular basis. This breathing space should be used as a time to plan for the future and to start to implement those plans including, where necessary, initiating restructuring discussions with stakeholders and considering mechanisms for implementation.

The Chancellor acknowledged yesterday the need to live with the virus and businesses need to take steps to safeguard their medium and long term future.

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