The Corporate Insolvency and Governance Act 2020 introduces sweeping insolvency reforms in response to the business impacts of Covid-19, designed “to give companies breathing space and keep trading while they explore options for rescue”. Our UK Restructuring, Turnaround and Insolvency team have published an article in International Corporate Rescue which considers the key elements of the reforms. Click here to download a copy of the article, which first appeared in Volume 17, Issue 4 of International Corporate Rescue and is reprinted with the permission of Chase Cambria Publishing.
The most relevant aspects from a general litigation perspective are:
- What amounts to a temporary ban (until 30 September 2020) on statutory demands and winding up petitions, unless the creditor can prove that a company would have been unable to pay its debts even without the Covid-19 crisis – a threshold that will likely be very difficult to satisfy when the majority, if not all, of the relevant financial information is in the possession of the company rather than the creditor.
- Ipso facto provisions which mean that where a company enters an insolvency process (excluding existing schemes of arrangement), its suppliers of goods and services will not be permitted to: enforce termination rights which would otherwise have arisen due to insolvency; rely on any pre-existing termination right (whether related to insolvency or not); make ongoing supply to the company conditional on payment of past invoices; or exercise any right to do “any other thing” (eg increase prices, charge default interest or accelerate payment terms) as a result of insolvency.
Other important aspects of the reforms considered in the article are a temporary suspension of wrongful trading liability and a new debtor-in-possession company moratorium.