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The UK Government introduced the Corporate Insolvency and Governance Bill on 20 May 2020 with the reading of the Bill taking place in the House of Commons this Wednesday 3 June 2020. Some of the measures being introduced are temporary and designed to help companies in the short term which are facing ongoing financial pressures as a result of the ongoing COVID-19 pandemic, however many of the other changes represent a more permanent and fundamental change to insolvency law in the UK.

After the reading of the Bill has taken place on Wednesday, it will then be considered by the House of Lords and if passed by both houses it will become law throughout the UK once it receives Royal Assent.  It is anticipated that this process will be fast tracked given the urgency of some of the temporary measures and we expect this to be become law by early July.   During the course of June, the Stronachs Restructuring and Insolvency Team will therefore be publishing a series of articles looking at the implications of these significant legislative changes.  

This is the first in the series and is intended as a quick overview of the main areas of reform under the Bill, with more detail to follow.

Termination of Supply Contracts

New measures are to be introduced which will prevent suppliers of goods and services from terminating, varying or exercising any right under a contract as a result of the other party entering into an insolvency or restructuring procedure. This is aimed at encouraging a rescue culture and avoid situations where suppliers hold their customers to ransom by threatening to cease supplying unless they are paid up to date. This ban on “ipso facto” clauses will mean that suppliers may have to carry on supplying on normal terms without any guarantee of being paid for any arrears from earlier supplies.


A new moratorium proceeding is to be introduced which will provide companies with breathing space from creditors so that they can spend time putting together a rescue plan. The moratorium will last for an initial 20 business days and can be extended for a further 20 business days automatically with the possibility of extending for up to one year or more. During this period, the affected company would be entitled to stop payments which are due and relate to an earlier period but would still have to honour debts falling due during the moratorium period. This regime will be similar to the moratorium currently available in administrations and would also prevent security being enforced and insolvency and other court proceedings being brought against the distressed company.

Wrongful Trading

Since the UK Business Secretary, Alok Sharma, announced on 28 March that the Government is to temporarily relax the rules on wrongful trading during the COVID 19 crisis, we have been waiting for the finer detail of this to be published. The Bill now sets out more detail which clarifies to some extent how this will work although there remain doubts as to how effective this relaxation will prove to be. If a court is looking at a director’s conduct in trying to determine the extent to which that individual should personally contribute to the insolvent company’s assets, that director is not to be held responsible to the extent that the financial position of the business or its creditors worsened during the period from 1 March 2020 to the date which falls 30 days after the Bill comes into force.

Corporate Governance

There will be new temporary measures brought in to allow flexibility for the holding of shareholder meetings given the difficulties in complying with social distancing both before and after lockdown. This will allow companies to convene and hold meetings in a way which will allow them to abide with the guidelines to prevent the spread of COVID-19 and will override any legislation or constitutional documents which require meetings to take place in person. There are also to be formal extensions of the time periods for companies to file annual accounts and reports.

Statutory Demands & Winding Up Petitions

In a similar vein to the temporary relaxation of the wrongful trading rules, the Bill is to introduce temporary measures to prevent statutory demands and winding up petitions being presented if an unpaid debt arises as a result of COVID-19. Any such statutory demands made or petitions presented to a court would be void, though in the latter context a court will need to first determine the true cause of the default in payment.

The Bill itself runs to some 238 pages, so the Restructuring and Insolvency Team at Stronachs will break this all down into more detailed notes throughout the course of June, click here for updates. We are also at hand to support and guide companies and directors facing any of these issues.

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