The UK Government has setup the Corporate Insolvency and Governance Act 2020, which will put in place a number of measures to change the insolvency and company law to help businesses affected by the financial impact of the Coronavirus (COVID-19).
The new Bill contains six insolvency measures and two corporate governance measures which will provide vital support to businesses to help them through this period of unprecedented instability. It will introduce temporary easements and flexibility to companies who have had an extreme downturn in sales and operational availability.
So what will the new Insolvency Act provide?
The Act introduces a moratorium to give companies breathing space from their creditors while they seek a rescue. It prohibits termination clauses that push for insolvency, thus preventing suppliers from stopping their supply or asking for additional payments while a company is going through a rescue process. It also introduces a new restructuring plan that will bind creditors to it and enabling the insolvency mechanism to be sympathetic to the demands of the emergency situation caused by the global pandemic.
Another important measure introduced is the temporary cessation of personal liability for wrongful trading, protecting Directors who try to keep their companies afloat and also temporarily stops creditors from filing statutory demands and winding up petitions for debts related to the coronavirus.
The final measures are the temporary easing of company responsiblities on businesses by allowing them to hold closed Annual General Meetings (AGMs), conduct business and communicate with members and shareholders electronically and also extending filing deadlines. These temporary measures will also be made available retrospectively so as to be as effective as possible for companies suffering the most during these difficult times.
“This is a particularly challenging time for businesses right across the UK, and we are doing all we can to support them through this period.” Alok Sharma, Business Secretary
The new Act will help companies that were trading successfully without any problems before the Coronavirus pandemic, ensuring jobs are protected and allows the best possible chance to return to normal business activities.
The Act also provides Directors with reassurance with their legal responsibilties whereby those who act responsibly will not suffer from the current UK insolvency process. This will help Directors retain their businesses whatever their size, but it will especially help small companies who have experienced significant damage to their businesses and also aid the people who they employ and service.
Overall what this Act provides to the businesses that are struggling the most is breathing space to enable them to repair and recover their very viable companies, benefit from and access rescue options without fear of external legal factors or debt frameworks levied by creditors, as well as deal with time constraints and application delays without worrying about the financial and company impact as each day passes before a rescue.
Deep Dive into The Act
The Corporate Insolvency and Governance Act was introduced on Wednesday 20 May and made its way through Parliament to Royal Assent on 25th June 2020, which made the new Act part of UK Law. The Act introduces new corporate restructuring tools to the insolvency and restructuring regime to give companies the breathing space and tools required to maximise their chances of survival, such as introducing a new moratorium to give companies breathing space from their creditors while they seek a rescue.
Other amendments to the UK law within the Act are preventing suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process, temporarily removing the threat of personal liability for wrongful trading from directors who are trying to keep their companies afloat and temporarily prohibiting creditors from filing statutory demands and winding-up petitions for COVID-19 related debts within the relevant period. Schedule 10 Part 1 of the Corporate Insolvency and Governance Act refers to the "relevant period" being from 1st March to 30th September 2020. You can read this at http://www.legislation.gov.uk/ukpga/2020/12/schedule/10/enacted.
However, this temporary moratorium does not apply if creditors have "reasonable grounds" for believing that the coronavirus has not had a financial effect on a company, or the relevant grounds to formally demand payment of the debt would have applied even if the coronavirus had not had a financial effect on the company. Reasonable grounds are defined in the Insolvency Act 1986 Sections 123 (1) where if you look at clause 1(a) it applies to the majority of debt cases. You you can read this at http://www.legislation.gov.uk/ukpga/1986/45/section/123
So it does come down to simple honest reasoning. If somebody owes you a debt, they must still pay it. If the debt has amounted because of a financial effect due to the Coronavirus and it is proven to be the case and within the timeframe, then negotiate with your debtor to repay it within the boundaries of what they are able to manage. However, if a debt is not being paid and COVID-19 is being used as an unfounded excuse, then the standard debt collection process and legal workflow applies to enable the debt to be collected. For a breakdown on the Act, the new measures and how it affects both the debtor and creditor, visit https://www.gov.uk/government/publications/corporate-insolvency-and-governance-bill-2020-factsheets/overview-of-the-bill
To get your invoice debts collected effectively as well as manage your creditors unemotionally throughout the Coronavirus pandemic and keep your business afloat, speak to us on 0208 720 7309 or email email@example.com. You can also access COVID-19 specific credit control support at https://www.creditcontroluk.co.uk/coronavirus-debt-support.