The Corporate Insolvency and Governance Bill (the “Bill”) has been laid before the UK Parliament today, Wednesday 20 May 2020.
The Bill, if passed, will implement some significant changes to UK insolvency law and at the same time effect a range of temporary measures to assist with corporate governance during the Covid-19 situation.
Moratorium for protection from creditors
The question of whether or not a trustee in bankruptcy can sell a family home to help recover the debts of an individual varies on a case-by-case basis. The law in Scotland provides protection to a debtor's immediate family, but permission can still be granted to sell the property – if five factors are considered first.
Being a director is not just about managing and controlling a business; it also involves taking on certain legal duties and obligations. Directors get the benefit of limited liability, but directors' duties impose certain obligations to ensure they act in the best interest of the company, its employees, shareholders – and in certain circumstances, its creditors too.
Restructuring and insolvency issues are rarely out of the news at the moment, with a range of businesses seeking to adapt to the challenges of a post-COVID-19 world. You might have seen stories about struggling businesses going into administration or liquidation, or securing a company voluntary arrangement (CVA).
R3, the association of business recovery professionals, has produced a Standard Form Covid 19 CVA Proposal and accompanying Covid 19 Standard Conditions.
The Standard Form proposals are intended for use by SME companies, in each of the jurisdictions across UK that have been affected by Covid 19, to save time and cost and make CVAs more accessible to them.
It is perhaps not as well-known as it should be that the Bankruptcy (Scotland) Act 2016 sections 195 – 198 provides a six-week moratorium – effectively a postponement or period of protection from action to recover debts - to individuals, partnerships and trusts facing financial distress or liquidity issues.
The moratorium provides breathing space to allow parties to be protected from their creditors while they take advice and consider what debt relief options might be available to them.
A party can normally apply for the moratorium once in any 12-month period.
Wrongful trading rules, which can result in directors being personally liable for losses incurred as a result of continued trading, are being temporarily suspended in recognition of the large number of businesses being impacted by COVID-19. While this news will be welcomed by businesses across the UK, directors should not be complacent about their responsibilities.