Introduction – the framework

The Corporate Insolvency and Governance Act 2020 (“CIGA“) ushered in a flexible restructuring compromise or arrangement for companies in financial difficulty (the “Restructuring Plan“). The legislation governing the Restructuring Plan sits alongside that for schemes of arrangement and is included in a new Part 26A to the Companies Act 2006.

The Restructuring Plan does not apply to companies that are solvent with no risk of insolvency; rather it only applies to companies where two conditions have been satisfied:

The Corporate Insolvency and Governance Act 2020 is far-reaching with its implications extending to pension schemes. Pension scheme employers and trustees should ensure that they are familiar with the provisions of the Act, and the potential impact that they could have on schemes, employers and savers.

Introduction

The Act received royal assent on Thursday 25 June. The Act passed through Parliament very quickly, so that its provisions can be used by companies experiencing financial difficulty as a result of the COVID-19 pandemic. The Act contains:

On 25 June 2020, the Corporate Insolvency and Governance Bill (the “Bill”) received Royal Assent and on 26 June 2020 CIGA came into force. The restructuring team in Mayer Brown’s London office has previously commented on the different elements of the Bill in a series of blog posts and podcasts.

The Corporate Insolvency and Governance Bill 2020 (the “Bill“) introduces a flexible restructuring compromise or arrangement for companies in financial difficulty (the “Restructuring Plan“). It is proposed that the legislation governing the Restructuring Plan will sit alongside the schemes of arrangement and be included in a new Part 26A to the Companies Act 2006.

The Restructuring Plan will not apply to companies that are solvent with no risk of insolvency; rather it will only apply where two conditions are satisfied:

On 20 May 2020, the UK government announced the Corporate Insolvency and Governance Bill (the “Bill”), introducing a mixture of permanent and temporary measures, the latter being in response to the financial challenges companies are facing as a result of the Covid-19 pandemic and lockdown. In the absence of extensive consultation with insolvency practitioners and industry experts, it remains to be seen how effective the measures will be in practice.

On May 20, 2020, the UK Government published its much anticipated draft legislation (the Corporate Governance and Insolvency Bill) which aims to provide greater opportunities for company survival and better returns for creditors during and after the COVID-19 emergency. The Government intends to ask Parliament to expedite progress of the Bill.

This is the second litigation involving the furlough scheme in the insolvency context, following on from Re Carluccio's (in administration). Please refer to our note on Carluccio's for background reading on how the furlough scheme weaves into insolvency law.

Issue

In the first litigation involving the Furlough scheme, the court in Re Carluccio's (in administration) ruled on how the administrators can lawfully give effect to furlough arrangements with the employees who have agreed to the variation of their employment contract.

Read on for our analysis of the case which gives an interesting insight into how the courts in the future might interpret the furlough scheme.

1. Background

Carluccio’s in administration

A court¹ has approached the interplay between the Insolvency Act 1986 and the Government's furlough scheme so as to encourage and support the rescue culture and facilitate access to the scheme by administrators. It ruled that: