The Corporate Insolvency and Governance Act 2020 which was introduced in April this year and became law in June 2020, detailed a number of measures to protect businesses from insolvency. These changes were due to expire on 30 September 2020, however, on 24 September, the Government announced that they would be extending these changes as the coronavirus pandemic continues to cause uncertainty.
These new measures will now expire on one of three new dates as outlined below, the extended measures include:
- Statutory demands and winding-up petitions will continue to be restricted until 31 December 2020 to protect companies from aggressive creditor enforcement action as a result of coronavirus related debts. A statutory demand served between 1 March 2020 and 31 December 2020 cannot be relied on as evidence of insolvency. A petitioner must provide evidence that the creditor has ‘reasonable grounds for believing’ the debtor would be deemed insolvent even if coronavirus hadn’t had a financial effect and satisfy the judge of this.
- New provisions were introduced in June 2020, applying to businesses entering insolvency proceedings. The provisions prevented suppliers from terminating supply contracts or asking for payment of arrears before continuing to supply. Termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, small suppliers will remain exempted from the obligation to supply until 30 March 2021 so that they can to protect their business if necessary.
- A new moratorium procedure to protect businesses that may become or are insolvent from creditor action was introduced in June. 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 temporary moratorium rules will also be extended to 30 March 2021. Further changes may be announced shortly for those viable businesses that can seek rescue.
- Companies and other qualifying bodies with obligations to hold Annual General Meetings will continue to have the flexibility to hold these meetings virtually until 30 December 2020.
New procedures introduced in June but with no timing changes are;
- New restructuring plan
- Wrongful trading
All of these measures apply to businesses only and not to individuals.
Although set with the best of intentions, businesses now face further restrictions and added costs. In the future, any further ongoing support is likely to be more targeted rather than the current general safety blanket approach currently, which is open to misuse – deliberate or accidental.
Business Minister Lord Callanan commenting on the measures said;
“It is vital that we continue to deliver certainty to businesses through this challenging time, which is why we are now extending these important and necessary measures to protect companies from insolvency. Through this measure, we want to ensure businesses are able to not only come through this testing period, but also to plan, adapt and build back better”.
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