Hogan Lovells Publications | 06 July 2020
Contracts and Insolvency – a transformational change
New statutory provisions retrospectively change the way many existing and future contracts work. Businesses urgently need to look afresh not just at supply arrangements but also many other significant transactions of which the supply of goods or services forms part.
Het coronavirus lijkt haar greep op ons land stilaan te lossen, maar de impact van het virus op de (Belgische) ondernemingen is aanzienlijk. Tijdens de crisis nam de overheid heel wat maatregelen om ondernemingen toe te laten tijdelijk te overleven. Het zal voor vele ondernemingen echter een uitdaging zijn om zich ook na de crisis aan te passen aan de gewijzigde economische realiteit.
In this week’s update: The Corporate Insolvency and Governance Act 2020 comes into force, the Government extends company and LLP filing deadlines, new guidance on public health emergency takeover interventions, FCA censure of accompany for historic market abuse and a few other items.
Suppliers can no longer terminate contracts, refuse to supply goods or services or amend payment terms with an insolvent customer due to its insolvency, save in limited circumstances. The new rules - brought in by the Corporate Insolvency and Governance Act 2020 (“CIGA”) - governing protection of supplies significantly restrict parties’ autonomy in relation to customer insolvency and will be a cause of concern for many suppliers.
New protection of supplies to insolvent companies
The Corporate Insolvency and Governance Act 2020 (the "Act") represents big changes to the current insolvency legislative framework and potentially to companies who may be affected by an insolvency within their supply chain. It will introduce new protections for insolvent companies against creditors wishing to exercise termination rights within supply contracts and against more aggressive creditor action.
The new insolvency legislation currently making its way through parliament will have a significant impact on restructuring of distressed SME businesses (the moratorium is not available to companies with publicly traded debt in excess of £10 million). The government intend this as a smaller business rescue and reorganisation tool and not an insolvency or scheme of arrangement based balance sheet restructuring process.
The Corporate Insolvency and Governance Act 2020 (CIGA) came into force on 26 June 2020, having been fast-tracked through Parliament. Although most of CIGA relates to insolvency law, the Act also makes some temporary changes to company law in the UK. The purpose of these is to give companies greater flexibility to deal with the difficulties caused by COVID-19.
Key changes
The COVID-19 pandemic has left many businesses badly affected, particularly those in industries such as leisure, travel and F&B, as consumer spending plummets. This article will discuss how companies can restructure businesses and operations to reduce costs. Companies facing financial difficulties or tremendous cost pressures may consider harnessing these out-of-court options to stay afloat and to possibly avoid insolvency proceedings.
The Act outlines certain insolvency law reforms in response to the COVID-19 crisis, including a temporary suspension of wrongful trading provisions for company directors. The suspension applies retrospectively from 1 March 2020 until 30 September 2020, and aims to encourage directors to continue to trade during the pandemic.
This change will not affect the directors’ duties regime. Directors must continue to comply with their duties, in particular those owed to the company's creditors where the company is, or is likely to be, insolvent.
The issuance of the Companies Act (Register of Beneficial Owners) (Amendment) Regulations, referred to as Legal Notice 247 of 2020 confirms that the Registrar of Companies shall have further powers to investigate the ultimate beneficial ownership of the companies that are to be or are registered in Malta. These new Regulations, which came into force in June 2020, shall require Maltese companies to abide by new annual filing obligation confirming ultimate beneficial ownership of the relative company’s issued shares.