Overview of the Bill
Updated 5 June 2020
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What are we going to do?
- introduce new corporate restructuring tools to the insolvency and restructuring regime to give companies the breathing space and tools required to maximise their chance of survival
- temporarily suspend parts of insolvency law to support directors to continue trading through the emergency without the threat of personal liability for wrongful trading and to protect companies from creditor action
- amend Company Law and other legislation to provide companies and other bodies with temporary easements on company filing and annual general meetings
How are we going to do it?
The Bill will:
- introduce a new moratorium to give companies breathing space from their creditors while they seek a rescue
- prohibit termination clauses that engage on entering an insolvency procedure, entering the new moratorium or beginning the new restructuring plan procedure. It will also prevent suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process
- introduce a new restructuring plan for companies in financial distress which include new cross class cram down procedures that allow a class of creditors to be bound by the restructuring plan even if they do not agree to the plan. This provision takes steps to provide safeguards for affected creditors in these situations
- enable the insolvency regime to flex to meet the demands of the crisis
- temporarily remove the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency
- temporarily prohibit creditors from filing statutory demands and winding-up petitions for COVID-19 related debts
- temporarily give 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
- temporarily ease burdens on businesses by extending filing deadlines at Companies House
- allow for some of the temporary measures to be retrospective, giving immediate support to businesses during COVID-19
Background
The Secretary of State for Business, Energy, and Industrial Strategy announced the government’s intention to introduce legislation to reform the insolvency and corporate governance framework in light of the COVID emergency at the daily HMG public briefing on 28 March. The government previously consulted on changes to the corporate insolvency regime and announced plans to introduce new insolvency restructuring procedures in August 2018. This Bill will implement these reforms together with temporary measures to support continued trading through the crisis.
There is widespread support for the measures in this Bill, including from the relevant professions and business groups. Many representations have been received asking for the measures to be implemented immediately in response to this crisis. It is vital that urgent action is taken to help struggling businesses to continue to trade during the current crisis and to boost the economy once we emerge from it.
Other actions the government is taking in addition to the Bill
Speed and impact are of the essence. This Bill is limited to only those urgent measures required to respond to the COVID-19 emergency.
The government will of course continue to consider what else it may need to do to support otherwise viable businesses through the current emergency.
How much will these measures cost?
A full impact assessment has been published for the measures that will be permanent reforms. The impact assessment estimates that the three permanent changes to the UK insolvency framework will result in net benefits to business totalling over £1.9 billion in today’s prices.
Although the temporary measures do not require an impact assessment, high-level analysis on the likely regulatory impacts and economic effects of the temporary measures has been carried out. This has been published as part of the explanatory notes to the Bill.
Will these measures apply across the UK?
The insolvency law measures in the Bill are “reserved” in relation to Wales, in some respects devolved in Scotland and are fully transferred to Northern Ireland.
The measures on meetings and filings apply to the whole of the United Kingdom. Company Law is a reserved matter in England and Wales and in Scotland.
As some of the measures, by virtue of the law they interact with, touch on devolved competence in Scotland, a Legislative Consent Motion is being sought.
As provisions will be made in the Bill for Northern Ireland, a Legislative Consent Motion is being sought.