Jasvir Jootla provides an overview of the recent changes to the Corporate Insolvency and Governance Act. She highlights the differences within the Act and discuss the impact it will have if you are dealing with insolvent businesses.
Transcript
With the Company Insolvency and Governance Act 2020 (CIGA 2020) grabbing all the headlines, the Finance Act 2020 (FA 2020), which received Royal Assent on 22 July, has gone somewhat under the radar. However, it has the potential to have an even greater impact on the restructuring market than CIGA 2020.
The two principal measures being brought in are:
The Finance Act received Royal Assent on 22 July 2020, bringing in significant changes for the restructuring market, as well as businesses that become insolvent.
The two principal measures being brought in are:
In standard building contracts most commonly used in the UK, a party is entitled to terminate the contract if the other party is insolvent (Clause 91 of NEC3 and NEC4 and Clause 8.5 and 8.10 of JCT/SBCC).
The Corporate Insolvency and Governance Act 2020 provides measures for businesses that are designed to provide temporary reliefs during the COVID-19 pandemic, as well as permanent measures for companies in financial difficulty.
Both COVID-19 itself and the severe financial impact the virus and associated lockdown has had on the UK economy, have led not only to a large number of UK businesses re-examining the contractual terms on which they do business but also to a spike in disputes. Some matters which have been prominent in current disputes, and which are therefore key considerations for business both in looking at their existing contracts and planning for the future, include the following: • What termination provisions do they have in their contracts?
Winding up a company – liquidation – applies in circumstances where a company is unable to pay its debts. In that situation, the company's directors, creditors or contributories can present a winding up petition. (This can be found in sections 122, 123 and 124 of the Insolvency Act 1986.)
A company is deemed unable to pay its debts if:
It is not uncommon for a person's job title to include the word "director", such as "Finance Director" or "Marketing Director". While such roles will carry a high level of responsibility, the individuals in these positions are not always formally appointed to the company's Board of directors. Even though such persons are not formally appointed as directors, they may still owe all (or at least some) of the same directors' duties as an appointed director.
In the case of 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd.[1](the "Fortress Case"), the Ontario Court of Appeal held that a judgment creditor is not entitled to enforce a writ of seizure and sale against a registered owner that beneficially holds land in trust for a judgment debtor, nor to priority over arm's length construction financing.
The (the CIG Act) received Royal Assent on 25 June 2020 and effects wide ranging changes.
On 26 June 2020, the Corporate Insolvency and Governance Act[1] (the Act) came into force.
The Act has significant implications for supply contracts as it will prevent many suppliers ending existing contracts once a business is insolvent. The Act will make a big impact on existing supply contracts, and will also affect the drafting and negotiation of new contracts.