Given the freak storms, record temperatures, and ease within which people have adapted to the new normal, as I look out of my ‘office’ window, cup of tea in hand, I wonder if I’m the only person who sometimes forgets that barely six new moons have come and gone across lockdown.
Back in May when I first wrote about The Corporate Insolvency and Governance Bill it seemed a long way off from becoming law. The Act (CIGA 2020) has now received Royal Assent and is in force, introducing new corporate restructuring tools and temporary easements to give distressed businesses the breathing space they need to obtain advice and seek a rescue.
The Act should, in theory, help hundreds of distressed businesses, and their creditors, during a time when we hear daily saddening reports of business after business succumbing to the Covid-19 Pandemic.
As with attempting to protect the health of individuals, so it seems are the Government attempting to nurse distressed business through this crisis. One of the Act’s key provisions is the introduction of the new role of a Monitor to oversee a corporate moratorium – an extendable 20 working day period during which businesses are protected from creditor action while they seek professional restructuring advice.
The length of any potential extension to the moratorium will be subject to whom the extension is being implemented by, for example whether the Directors are unilaterally extending it, whether there is an agreement from the creditors, or whether the court has ordered an extension. It is worth noting that not all companies will be eligible for this process and therefore if you are considering it as an option you may want to obtain provisional advice as to whether it is even available.
A Monitor must be a licenced insolvency practitioner – the Insolvency Service has provided guidance on their role and responsibilities which include: assessing the suitability of the process at the outset; and keeping under review whether this process will result in the rescue of the company.
The Act also provides other protections such as:
- Extending the suspension of termination clauses where a company enters into an insolvency procedure;
- Introducing a new restructuring plan which has the ability to bind creditors to it;
- Providing temporary relief until 30 September 2020 from businesses being subject to a winding up petition; and
- Protection from wrongful trading provisions where a business can demonstrate its difficulties have arisen directly from trading conditions caused by the Covid-19 Pandemic.
These easements are explained in more detail in a series of factsheets to help Directors understand more fully the options available to them, such as changes to company filing and meeting requirements have also been introduced to relieve the burden on businesses during the pandemic and allow them to focus all their efforts on continuing to operate
It is worth remembering that often for rescues to be successful, there will need to be compromise on the part of both creditor and debtor (I’m often led back at these times to the saying that the definition of ‘compromise’ is an outcome which both parties are equally disappointed with) and therefore constructive and open (without prejudice open, that is) dialogue from an early stage is likely to help make a difficult road more easily trod.
Charles Jamieson is a Solicitor in our Dispute Resolution Team, working across disciplines with our Company Commercial, Employment and Commercial Property Teams to provide advice to companies considering the suitability of re-structuring. He can be contacted by phone on + 44 (0)20 7631 4141 or email: firstname.lastname@example.org.
The above is accurate as of 28th August 2020. The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.