Corporate Insolvency and Governance Bill

The Corporate Insolvency and Governance Bill (the "Bill") was laid before Parliament on Wednesday 20 May 2020.

The Department of Business, Energy and Industrial Strategy noted that the Bill proposes the implementation of a series of significant changes to UK insolvency law. It is one of the biggest reforms to the UK's restructuring and insolvency framework in over 20 years.

The Bill introduces both permanent changes and a number of temporary measures to help relieve the burden on businesses dealing with the Covid-19 outbreak and to allow businesses to continue to trade where possible.

Winding Up Moratorium

One of the temporary provisions to be introduced by the Bill is a moratorium on the use of statutory demands and winding up petitions. This means that statutory demands and winding up petitions cannot be issued against companies where the reason for the unpaid debt is due to Covid-19.

These measures will be retrospectively applied and will void statutory demands which were made between 01 March 2020 – 30 June 2020 from forming the basis of a winding up petition. Winding up petitions for the period 27 April 2020 – 30 June 2020 (or one month after coming into force of the Bill, whichever is the later) will also be prevented from being presented unless the creditor can demonstrate:

• Covid-19 has not had a financial effect on the company; or
• the reason for the unpaid debt would have arisen even if coronavirus had not had a financial effect on the company.

At present, there is limited guidance as to the interpretation and meaning of "financial effect". However, it appears that "financial effect" is defined quite widely. Covid-19, for example, would be deemed to have had a "financial effect" on a debtor if the debtor is placed in a worse financial position due to the pandemic.

Should a winding up order be made under the temporary provisions, the commencement of the winding up will be from the date or the order as opposed to the date the petition. 

The Bill also includes retrospective provisions to allow the court to void any winding up orders made where a petition presented between 27 April 2020 and the Bill coming into force, which otherwise would not have been made had the Bill been in force. The court will be able to make any order it thinks appropriate to restore the company to the position it would have been in, had the petition not been presented.

It had previously been thought that these provisions would apply only to commercial property landlords, in an effort to protect tenants facing problems complying with rent payments under their leases due to Covid-19. However the temporary measures contained in the Bill are to apply to all companies and all debts rather than being just limited to commercial tenants.

These measures have been drafted to give businesses additional support and breathing space when dealing with cash flow problems caused by the pandemic and effect of lock-down.