Posted by Milan Kapadia, Partner
The Corporate Insolvency and Governance Act 2020: Yet another saga!
The Corporate Insolvency and Governance Act 2020 (“CIGA”) was first published in May 2020 and obtained Royal assent on 25 June and came into force on 26 June 2020. Amendments made to the Act are as follows.
There were three permanent measures introduced by CIGA, namely:
- A new free standing moratorium;
- A restructuring plan process;
- Restrictions on termination of contracts for the supply of goods and services.
Further, it also introduced temporary measures as a result of the COVID-19 pandemic, namely:
- Temporary changes to wrongful trading rules (ended 30 September 2020);
- Restrictions on using winding-up processes (ending 31 December 2020);
- Relaxation of meetings and filing requirements to give companies greater flexibility.
The restrictions on adopting the winding-up process have been extended to the end of December 2020. However, the temporary measures relating to wrongful trading were not extended and ended on 30 September 2020. We will have to wait and see what happens in the future given the latest lockdown which is anticipated to end on 2 December 2020 but may be extended.
We would advise all our clients to make a note of the dates on which the amendments will come to an end and pay careful attention to those which are permanent, specifically in relation to the Part 1A moratorium (discussed in more detail below).
Everyone is in need of a holiday
“Part A1” moratoriums were introduced by CIGA. This is a new process enabling companies that are, or are likely to become insolvent to apply for a 20 business day moratorium (although this is capable of being extended beyond the 20 day period or terminated early). On the face of it, it is a straightforward process, which does not require creditors consent or approval prior to filing. That said, the process requires various statements to be made by Insolvency Practitioners, which most do not seem comfortable making, and so obtaining such a moratorium is rare. Involvement of key stakeholders, including lenders, is key. The process itself is focused on the recovery of the company rather than the realisation of assets.
The moratorium will allow the company to continue trading with the added protection of being monitored by an insolvency practitioner (“monitor”), creditors being barred from bringing legal proceedings against the company in question during this time and landlords being unable to exercise rights of forfeiture. Financial creditors who are capable of taking enforcement action regardless of the moratorium are excluded from the moratorium.
The above being said, the company will still be required to ensure that it pays back debts (salaries and wages, amounts due under financial contracts including loan agreements and rent due during a period of the moratorium) on a regular basis. The company may be able to agree a payment holiday with its financiers to ease the pressure during this time. It is important to note that the moratorium will not crystallise a floating charge or enable a lender to step in and appoint an administrator.
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