Commercial landlords will have fewer enforcement options for debt recovery if the Corporate Insolvency and Governance Bill (published 20 May) is enacted – which is expected by 3 June 2020. The bill introduces the anticipated prohibition on the use of statutory demands for rent recovery in most circumstances, as well as other provisions designed to protect tenants.
The Government has announced proposals for retrospective changes for the urgent reforms to UK insolvency law, designed to protect companies and their directors during the COVID-19 outbreak.
Wrongful trading
These changes will include a temporary suspension (to the end of June 2020) of section 214 Insolvency Act 1986 in relation to wrongful trading, subject to passage of the upcoming Corporate Insolvency & Governance Bill through Parliament in the coming weeks.
Background: Financial Backdrop
The Stats
The restructuring and recovery profession is seeking to quickly adapt to the economic strain and disruption presented by the COVID-19 pandemic. Whilst new restructuring procedures may soon be introduced to provide distressed companies with protection, the industry has been encouraged to innovate with the tools it already has. One possible option that is developing is the concept of “light touch” administrations. The extent of the “light touch” and the suitability of the option will depend on each scenario.
On 8 April 2020, the Council of Ministers approved Law Decree no. 23, published in the Official Gazette (General Series no. 94, Extraordinary Edition of 8 April, 2020), containing “Urgent measures related to access to credit and tax obligations for businesses, special powers in strategic industry sectors, as well as healthcare and employment interventions, prorogation of administrative and procedural deadlines”.
With a recession appearing to be inevitable, for many companies innovation is more important than ever. Innovating and contracting in times of crisis requires caution, however, and contracts should as far as possible be insolvency-proof. Popular solutions include guarantees, sureties and retention of title. But it may be worth considering a lesser known option, the intercompany settlement clause, which works as follows.
Paying a debt to an insolvent company
On Saturday 28 March, Secretary of State for the Business, Energy and Industrial Strategy, Alok Sharma, announced a proposal for the urgent reforms to UK insolvency law, designed to protect companies and their directors during the COVID-19 outbreak.
Wrongful Trading (section 214 Insolvency Act 1986)
It was announced that there would be a temporary suspension of section 214 Insolvency Act 1986 in relation to wrongful trading.
The UK Government has announced wide-ranging emergency legislation in response to the Coronavirus crisis, in an attempt to reduce the burden on business and allow them to carry on trading during and after the pandemic. Some of the changes (other than the one on wrongful trading) were already intended following a consultation process that concluded in 2018 but are now being fast tracked.
Sky News reports today that the Insolvency Service is considering reforms to insolvency laws which may include a moratorium on winding up petitions against companies and the suspension of rules on wrongful trading.
Construction litigation is no stranger to insolvency, including insolvent claimants. This is also the case for adjudication, a fast and commercially driven form of dispute resolution for the construction industry. However, there has been considerable uncertainty as to the enforceability of adjudicators’ awards where a claimant is insolvent and receives a favourable decision. Recent cases have shed some light on this issue and have started to untangle the statutory difficulties when insolvency meets adjudication.