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There is concern that the disruption caused by the coronavirus pandemic will cause many businesses to fail. 

The Corporate Insolvency and Governance Act 2020 (CIGA 2020) received Royal Assent on 25 June 2020. Its measures fall into two sets: permanent measures to update the UK insolvency regime, and temporary measures to insolvency law and corporate governance intended to assist struggling businesses during the pandemic.

Almost all its provisions commenced on 26 June 2020, but most of its temporary business protection measures have retrospective effect from 1 March 2020.

The Government has since announced multiple extensions of the Act’s temporary measures. These extensions sought to assist businesses whilst coronavirus-related restrictions remain in place.

The permanent measures

The permanent insolvency measures contained in the Act (previously announced by the Government, and in development before Covid-19) mark a major change in UK insolvency law towards a business rescue culture more in line with U.S. insolvency (chapter 11). The new permanent measures are:

  • A free-standing moratorium for UK companies to give companies a formal “breathing space” in which to pursue a rescue or restructuring plan. During this moratorium no creditor action can be taken against the company without the court’s permission. The moratorium is overseen by a monitor (an insolvency practitioner) but responsibility for the day-to-day running of the company remains with the directors (in effect, it is a “debtor-in-possession” procedure).

    Temporary modifications to the new (and otherwise permanent) moratorium procedure have been made to relax the entry requirements. Temporarily, a company may enter a moratorium if it has been subject to an insolvency procedure in the previous 12 months; measures also ease access for companies subject to a winding up petition. The temporary moratorium rules have been extended and are due to expire on 30 September 2021.

  • A new restructuring plan to help viable companies struggling with debt obligations. Courts can only sanction a restructuring plan (that binds creditors) if it is “fair and equitable”. In other words, creditors vote on the plan, but the court can impose it on dissenting creditors (known as “cross-class cram down”).
  • A prohibition on termination (or so called “ipso facto”) clauses that are engaged when a company enters an insolvency procedure, a moratorium or begins a restructuring plan. In effect, the Act prevents suppliers from stopping their supply while a company is going through a rescue process. The Act includes safeguards to ensure that continued supplies are paid for, and suppliers can be relieved of the requirement to supply if it causes hardship to their business. Small suppliers were exempt from the obligation to supply until 30 June 2021 so that they can protect their business if necessary.

The temporary insolvency measures

The temporary insolvency measures in the Act aim to support businesses during the pandemic, help them to avoid insolvency and survive. These measures are: 

  • Suspension of serving statutory demands and restrictions on winding-up petitions where unpaid debt is due to Covid-19 (two measures). Statutory demands will be void if served on a company during the “relevant period” (which now applies between 1 March 2020 and 30 September 2021). Winding-up petitions presented during the “relevant period” on the basis that a company is unable to pay its debts will be reviewed by the court to determine the cause of non-payment. Where the unpaid debt is due to Covid-19, no winding up order will be made. These temporary measures were initially due to expire on 31 December 2020, but they have since been extended on multiple occasions.
  • Suspension of the wrongful trading rules. The Act temporarily removes the threat of personal liability for wrongful trading from directors (all other checks and balances on directors remain in place). The measure initially expired on 30 September 2020 but was then revived for the period 26 Novcember 2020 to 30 June 2021.

The temporary corporate governance measures

The Act’s temporary corporate governance measures sought to relieve the burden on businesses to allow them to focus their efforts on continuing to trade. Specifically, it: 

  • Temporarily gave companies (and other bodies) greater flexibility to hold Annual General Meetings (AGMs) and other meetings in a safe and practicable manner in response to the pandemic (e.g. virtual meetings). This measure applied retrospectively from 26 March 2020 to 30 March 2021. During this period directors were not exposed to liability for failing to hold an AGM in accordance with a company’s constitution.
  • Temporarily extended filing deadlines at Companies House. The Act provided for a temporary extension to the period allowed for the directors of a public company to comply with their obligation under section 441 of the Companies Act 2006 to deliver accounts and reports for a financial year to the Registrar at Companies House. The measure applied retrospectively from 26 March 2020 and expired on 5 April 2021.

The insolvency law measures in the Act are “reserved” in relation to Wales, in some respects devolved in Scotland and are fully transferred to Northern Ireland.  The corporate governance measures on meetings and filings apply to the whole of the UK. Company law is a reserved matter in England and Wales and Scotland.

See section 6.4 for details on the impact of some of these measures.

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