New business support measures: Corporate Insolvency and Governance Act 2020

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 to assist businesses during the pandemic.

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

The permanent measures

The permanent insolvency measures 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 new restructuring plan to help viable companies struggling with debt obligations. Courts can sanction a restructuring plan (that binds creditors) if it is “fair and equitable”. Creditors vote on the plan, but the court can impose it on dissenting creditors (known as “cross-class cram down”). Nine companies had used the new restructuring plan as of 31 August 2021;

• A free-standing moratorium to give UK companies a “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 (a “debtor-in-possession” procedure). Thirteen companies had obtained the new moratorium as of 31 August 2021.

  Temporary modifications to the new (and otherwise permanent) moratorium procedure were made to relax the entry requirements during the pandemic. A company could enter a moratorium even if it was subject to an insolvency procedure in the previous 12 months; measures also eased access for companies subject to a winding up petition. The temporary moratorium rules expired on 30 September 2021.

• A prohibition on termination (or “ipso facto”) clauses that are engaged when a company enters an insolvency procedure, a moratorium or begins a restructuring plan. 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 to protect their business if necessary.

The temporary insolvency measures

The temporary insolvency measures in the Act sought to support businesses during the pandemic. These measures were: 

• Suspension of serving statutory demands. Statutory demands were void if served on a company during the “relevant period” (between 1 March 2020 and 30 September 2021).

• Restrictions on winding-up petitions where unpaid debt is due to Covid-19. Winding-up petitions presented during the “relevant period” on the basis that a company is unable to pay its debts were reviewed by the court to determine the cause of non-payment. Where the unpaid debt was due to Covid-19, no winding up order could be made. These restrictions expired on 30 September 2021, but modified rules applied from 1 October until 31 March 2022. Between October 2021 and March 2022, winding-up petitions could only be presented: (i) in respect of debts of over £10,000; (ii) if the debtor had been given 21 days to respond with a proposal for repayment of the debt; and (iii) (for commercial rents only) if the debt wasn’t related to coronavirus. These modified rules aimed to promote a gradual return to the normal regime.

• Suspension of the wrongful trading rules. The Act temporarily removes the threat of personal liability for wrongful trading from directors. The measure initially expired on 30 September 2020 but was then revived from 26 November 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 apply to England and Wales, and partly to Scotland.  The corporate governance measures on meetings and filings apply to the whole of the UK.