New restructuring legislation every director should be aware of

Eileen Blackburn


New restructuring legislation every director should be aware of

With traditional retail on its knees and hospitality and leisure in melt down, the Corporate Insolvency and Governance Bill (CIGB), which was presented to Westminster on 20 May is very welcome and should greatly aid a range of business. And indeed every company director should make themselves aware of these changes, just in case they are ever needed.

In recent weeks we have seen the introduction of various measures to support businesses and individuals through the short and medium term, and the CIGB builds further on these foundations.  The bill will be fast tracked and should be introduced at the beginning of June.

Why the need for new Insolvency legislation?

The government backed schemes are all intended to support businesses through the lockdown, and recognising that the effects on businesses will be significant, the CIGB further supports these measures. Businesses have been left with no, or severely restricted incomes, and it is extremely difficult to plan ahead in the face of the uncertainty brought about by the pandemic.  These additional measures have been introduced to assist businesses to emerge functioning at the other side of lockdown.  Some measures are temporary and very specific to the COVID-19 lockdown, and others permanent and overdue for introduction.

What are the Temporary Measures?

  • Creditors have in the past used ‘statutory demands’ as a means of debt collection, and the basis of a winding up application to the court to liquidate debtor companies. Until at least 30 June 2020 (this date may be extended) the option to proceed with a liquidation on the back of a statutory demand will not be available.  In addition, the courts will require to be persuaded that the reason the company is unable to pay its debts is not down to COVID-19.  In other words, if a company is unable to pay debtors purely due to COVID-19 then creditors will not be able to push them in to liquidation. The wrongful trading provisions will also be temporarily lifted.  This measure will allow directors to make sound business decisions free of the additional concern that their efforts to trade through this unprecedented situation will result in personal liability for company debt. It’s basically a bit of protection, as every company director’s ability to take a view of future financial stability is limited right now. To help remove practical and administrative burdens it is intended that there will be an extension to deadlines for filing documents with companies house and remote attendance at meetings will be permitted.  

What are the Permanent Measures?

  • Some of the changes to Corporate Insolvency which have been on the stocks for some time, are now to be introduced. Firstly companies will be able to seek a moratorium without the need to enter an insolvency process. It may be, that the final outcome will be a formal insolvency process, but this will not be pre-requisite for the moratorium, which will be stand alone. Directors will remain in control. The process should be relatively simple, providing the conditions are met, and the initial 20 day period can be extended for up to a year. This means that company directors will be able to seek a moratorium simply as a way to give the company some time (20 days, perhaps up to 1 year) to weather the storm and/or restructure, without having to enter a formal solution – and without it having to end in closure.
  • A new scheme of arrangement will be introduced, designed to end situations where large creditors who all agree with a company’s restructure plans are ‘out voted’ by a larger number of much smaller creditors. This will be of particular relevance to entities wishing to enter arrangements with significant creditors, free from concerns that dissenting creditors could scupper the plans. Finally suppliers will be prohibited from terminating supplies because of insolvency or in the event of the moratorium mentioned above. This should enable businesses to trade better through such situations and keep going, rather than being forced to close.

How does all this impact me / my business?

Overall, it’s our view that these changes, both temporary and permanent, will provide companies with more options in order to get through this period, and indeed other tough environments they may encounter.

However, the imperative is very much on the Directors of companies to both be aware of the options, AND seek help and assistance in enough time and before it is too late.

If you’d like to discuss any of this, or you have any concerns over your own business debt, please speak to one of our restructuring team as soon as possible. More information and contact details for members of the team can be found on our Business Restructuring page, or you can call and speak directly to:

Whilst some of our staff are currently working from home, all of the above can be contacted on their email addresses or on 0141 221 2984.

They are there to help if you need it.

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Other COVID-19 Information:

For all our help, support and information around COVID-19 / Coronavirus visit www.frenchduncan.co.uk/covid-19.

Here you can link to articles covering deferral of HMRC payments, new business rates & taxbusiness loans available (what we know so far, who will be eligible and how they might work), a 10 Step Guide to the Job Retention Scheme (plus a guide specific to holiday allowances within that) and even Top Tips on how to keep your personal finances healthy during this time.

We’ll keep these updated as things change, so remember to check back regularly.  And we’ll be getting more written on other topics as soon as we can.

It’s just our way of trying to help.

French Duncan. #thepeopleforyou

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