What does the Corporate Insolvency and Governance Act 2020 (CIGA) do?
CIGA introduces various changes to various provisions of the Insolvency Act 1986 and the Companies Act 2006.
Some of these changes are designed to be permanent changes to the insolvency landscape (largely implementing proposals for insolvency law reform introduced in 2018) – for example, the introduction of a moratorium, a ban on termination provisions (also known as ipso facto clauses) and a new pre-insolvency rescue and restructuring regime.
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:
Re Patrick Cowley and Lui Yee Man, Joint and Several Liquidators of the Company [2020] HKCFI 922(date of judgment: 27 May 2020)
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.
The Corporate Insolvency and Governance Act received royal assent on 25 June 2020 and comes into force immediately.
The Act introduces a range of new corporate restructuring tools and suspends, temporarily, parts of the existing insolvency regime. The purpose of this note is to update you on two key aspects of the Act: the moratorium on legal action and the temporary changes in relation to statutory demands and winding-up petitions.
Moratorium on legal action
Final amendments to the Corporate Insolvency and Governance Bill were approved by the House of Lords on 23 June 2020, and by the House of Commons on 25 June 2020. The Act came into force on 26 June 2020, however certain provisions have retrospective effect from 1 March 2020. It will have a significant impact on defined benefit pension schemes, and the ability of pension scheme trustees to take action if the scheme's employer is struggling. This legal update explores the Act's key provisions through a pensions lens.
Creditors and Coronavirus
As the scale of the economic impact on businesses and individuals of the Coronavirus pandemic becomes apparent, the Scottish and UK governments have sought to protect companies and individuals from creditor led insolvency events.
Bankruptcy:
In previous blogs, we’ve discussed the temporary changes to the law being brought about by the UK Government’s Corporate Insolvency and Governance Bill. The Bill is set to strip Landlords of some of the tools available to recover arrears from their tenants. It will render statutory demands served between 1 March to 30 June 2020 ineffective, while making it near impossible for landlords to liquidate tenants (by winding them up) if they have been financially affected by COVID-19.
In previous blogs, we’ve discussed the temporary changes to the law being brought about by the UK Government’s Corporate Insolvency and Governance Bill. The Bill is set to strip Landlords of some of the tools available to recover arrears from their tenants. It will render statutory demands served between 1 March to 30 June 2020 ineffective, while making it near impossible for landlords to liquidate tenants (by winding them up) if they have been financially affected by COVID-19.
Clearly there are some major economic challenges ahead. Many businesses may be able to withstand the challenges ahead but it may very well be that their trading counterparties (whether suppliers, customers or other stakeholders) will not. Whilst these times can represent an opportunity for some, such as potential acquirers (whether of businesses, assets or distressed debt), in most cases, the climate represents a threat to businesses.