Background
The Corporate Insolvency and Governance Act 2020 (CIGA) came into force on 26 June 2020.
Schedule 10 of CIGA restricted the presentation of debt-related winding-up petitions where a company cannot pay its bills (including rent) due to COVID-19 in Great Britain.
These restrictions were initially due to end on 30 September 2020, but have since been extended until 30 September 2021.
The Current Position
The fact that more businesses have not failed is the most surprising thing about the Covid-19 pandemic. However, if you look at the fashion retail sector alone, the list of some of the high profile casualties is alarming: Arcadia Group, Bonmarché, Debenhams, DW Sports, Laura Ashley, M&Co, Monsoon, Moss Bros, Oasis and Warehouse, Peacock and Jaeger, TM Lewin and Victoria’s Secret (UK Business)… with more expected.
Every five years or so, the insolvency profession seems to try and wrestle with the public outcry about the use of so-called pre-packs. In its simplest terms, this is where “Widget Manufacturing Limited” goes into administration, and the very next day “Widget Manufacturing 2021 Limited” is operating the same business and being owned by the same shareholders. The only crucial difference is that several key liabilities (usually owed to landlords) are left behind in the insolvent business.
A quick recap
In March 2020 the UK Government imposed unprecedented restrictions in the face of the Covid-19 pandemic in relation to the forfeiture of commercial leases by enacting the Coronavirus Act 2020 and other business support measures. These introduced the following key restrictions on rent arrears recovery:
The Corporate Insolvency and Governance Act (“the Act”) became law on 26 June 2020. (Read our previous update on the Act here). As has been widely discussed, the Act introduces new corporate insolvency rescue procedures as well as temporary and permanent insolvency and corporate governance measures.
When a business is distressed and is due to run out of cash, advisors are often called upon to carry out an accelerated M&A process. Whilst there may be scope for the process to be run on a solvent (share sale) basis, it may need to be implemented on an assets basis, often via a formal insolvency process. Because of the undeniable threat of insolvency, directors of distressed businesses should obtain specialist legal advice on their duties at the earliest possible stage.
Board considerations
The UK Government announced on 24 September 2020 that some of the temporary Covid-19 measures introduced under the Corporate Insolvency and Governance Act (“the Act”) will be extended.
Summary of extension
Summary of extension
Imagine that IPs have been appointed as administrators of an aerospace engineering company that operates around the world. The company was financially stressed before the COVID-19 pandemic and then sales dried up. With no reasonable prospect in sight, the directors filed for administration and questions have since been raised about how the directors conducted the company’s affairs shortly before it entered administration.
The temporary measure allowing companies and other qualifying bodies to hold AGMs virtually will be extended until 30 December 2020. The measure, which was introduced as part of the UK Government's response to the COVID-19 pandemic, had been due to expire on 30 September 2020.