introduce new corporate restructuring tools to the insolvency and restructuring regime to give companies the breathing space and tools required to maximise their chance of survival
temporarily suspend parts of insolvency law to support directors to continue trading through the emergency without the threat of personal liability for wrongful trading and to protect companies from creditor action, and
amend Company Law and other legislation to provide companies and other bodies with temporary easements on company filing and annual general meetings
Main provisions
Moratoriums
Sections 1 to 6 and Schedules 1 to 8 amended the Insolvency Act 1986 to provide for a moratorium for companies that are likely to become insolvent. The moratorium would allow insolvent companies or companies that are likely to become insolvent to obtain a 20 business day period in which they could seek to restructure or seek investment without creditor actions. This period may be extended by a further 20 days. The company's affairs must be monitored by a qualified insolvency practitioner during the moratorium period.
Arrangement and reconstructions
Section 7 and Schedule 9 amend the Companies Act 2006 to insert a new part into that act which will allow for companies in financial difficulty, or which are likely to encounter financial difficulties, to propose a restructuring plan which allows into to compromise certain creditors or shareholders. The restructuring plans introduced under this section are modelled to the existing scheme or arrangement provisions but with the addition of the ability to cram down across classes of creditors.
Sales to connected persons
Certain provisions in the Insolvency Act 1986 which allowed for regulations to be made to prohibit or restrict the sale of company property by an administrator to a person connected to the company. These provisions were due to expire in May 2020 and were extended to June 2021.
Sections 12 and 13 temporarily suspend the liability for wrongful trading for company directors by assuming that any worsening of the directors are not responsible for a worsening of the financial position of a company during the pandemic. These provisions do not apply to certain financial institutions and does not relax other offences that may arise under the Insolvency Act 1986 or the general duties of directors under the Companies Act 2006.
Termination clauses
Section 14 amends the Insolvency Act 1986 to prevent suppliers from terminating contracts where a company enters into insolvency proceedings, for breaches that occur prior to insolvency or make it a condition of future supplies that pre-insolvency arrears are paid. Exclusions were made from this provision where the contract would cause the supplier hardship, for certain small suppliers and a number of further exclusions were made in respect of certain entities, industries and types of supply as a new schedule to the Insolvency Act 1986.
Powers to amend insolvency legislation
Sections 20 to 27 gave further powers to the Secretary for State to make regulations to amend corporate insolvency or governance legislation. The powers given were limited to changes to the conditions that must be met before insolvency, changing the way in which the insolvency procedures applies and to change the duties of periods with corporate responsibility. Such provisions may only be used where such provisions are urgent and proportionate, cannot have effect for more than 12 months and cannot be made after 30 April 2021.
Meetings and filings
Section 37 and Schedule 14 provided for relaxations to the rules applying to requirement for companies to hold meetings during the pandemic to take account of lockdown and social distancing measures. The rules provide that shareholder meetings may be held electronically and voting at such meetings may be held electronically. The provisions apply to meetings that would otherwise be required to be held between 26 March 2020 and 30 September 2020. It also allows for companies to extend the period in which to hold an annual general meeting and an extension for the period in which public companies must file their financial statements.
Powers to change periods
Sections 41 and 42 gave powers to the Secretary for State to curtail the temporary time provisions which apply to parts of the Act or to extend such periods for up to 6 months.
