The enacted Corporate Insolvency and Governance Act (the Act) introduces three permanent reforms to the existing insolvency legislation and certain temporary measures designed to address the immediate impact of COVID-19 on UK businesses. Among other things, the Act looks to maximise the potential for struggling companies to be maintained as a going concern. As market participants and the courts get to grips with the new legislation, it is clear that there will be some impact on the special situations landscape and the business of stressed and distressed investment.
In March 2020, Business Secretary Alok Sharma announced that provisions on wrongful trading would be suspended. The move came as part of a wider package of measures that sought to provide assistance to businesses – and their beleaguered boards – experiencing financial distress due to Covid-19.
Now set out in the Corporate Insolvency and Governance Act 2020 (CIGA), which was passed on 26 June 2020, the provisions adapt the wrongful trading regime making directors’ liability for the “relevant period” unlikely.
Why does it matter?
On 26 June 2020 the Corporate Insolvency and Governance Act (CIGA) came into force. The CIGA has made both permanent and short-term changes to the insolvency regime in response to the coronavirus pandemic and its consequences.
Why does it matter?
One of the permanent reforms provides that a contractual term of a contract to supply services or goods will be ineffective if:
On 4 June 2020, a draft of The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020 was provided to the Public Bill Committee. The Regulations are due to come into force on 1 December 2020.
The draft Regulations set out the debts due to HMRC that will have ‘secondary’ preferential status in insolvencies from 1 December 2020. They are debts in respect of PAYE income tax, employee NICs, construction industry scheme deductions and student loan repayments. VAT debts are to be treated in the same way, though are not covered by these draft Regulations.
The Corporate Insolvency and Governance Act ("the Act") came into expedited effect on 26 June 2020 and is intended to maximise the chance of corporate survival and reduce the threat of personal liability on directors during this unprecedented economic crisis.
D&O insurers should be clear about one thing: this Act will not help them and in fact it could well make things worse.
The Act
HM Treasury has provided the Public Bill Committee with a draft copy of The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020, to be made pursuant to the current clause 96 of the Finance Bill 2020. The draft regulations have not yet been formally laid before Parliament but are d
The government has introduced the Corporate Insolvency and Governance Bill in Parliament, which will put in place a series of measures. This includes temporarily removing the threat of personal The liability for wrongful trading from directors trying to keep their companies afloat through the emergency.
Permanent Reforms
Moratorium: a new stand-alone moratorium to provide businesses with an initial 20-business-day stay from creditor action.
The US Court of Appeals for the Sixth Circuit affirmed that a state court’s finding of “willful and malicious injury” in connection with the misappropriation of trade secrets entitled the plaintiff, in the defendant’s subsequent bankruptcy proceeding, to summary judgment of nondischargeability on collateral estoppel grounds. In re Hill, Case No. 19-5861 (6th Cir. May 4, 2020) (Donald, J.).
Applying for permission to advance fresh evidence on appeal is a tricky application, which has had varying degrees of success in the courts. Zheng Yougxiong v Gate Ventures Plc(1) is a useful example of the application of the criteria, albeit in the context of insolvency proceedings.
Background
Mr Zheng was a shareholder in, and creditor of, Gate Ventures plc. He sought and failed to obtain an administration order against Gate Ventures plc on the basis of a £2.5 million debt (the First Application).