Corporate Insolvency and Governance Bill

The much anticipated Corporate Insolvency and Governance Bill was published on the evening of 20 May 2020.  It builds on the COVID-19 related measures announced by the Business Secretary on 28 March 2020, as well as introducing other reforms that have been in prospect for rather longer.  As legislation specifically drafted to address the COVID-19 crisis it is expected to be fast tracked through parliament and become law within the next week or two.

Whilst there is scope for changes before the Bill comes into force the, current headline points are:

Temporary provisions

Part of the Bill is intended to give temporary relief to businesses affected by COVID-19.

SUSPENSION OF LIABILITY FOR WRONGFUL TRADING

The wrongful trading laws will be tweaked so that directors will not be required to contribute for any worsening of a company’s legal position in the period 1 March – 30 June 2020.  In practice, this is unlikely to provide much comfort to directors.  They remain potentially liable for contributions either side of this period (unless the 30 June cut off is subsequently extended).  More significantly, there is no equivalent suspension for breach of duties or misfeasance claims, which to a large degree overlap with wrongful trading and are usually brought in the same action as a wrongful trading claim.

Even in the short period since the Bill was published this provision has been subject to much criticism and, unless amended, is likely to have little practical impact.

STATUTORY DEMANDS AND WINDING UP PETITIONS

Alok Sharma also trailed these amendments in the 28 March 2020 announcement.  However, the draft provisions are far removed from the promised protection to commercial tenants.  No provision is made at all for individuals (as opposed to companies) who are tenants of commercial premises.  Conversely, the Bill seeks to place a halt on all statutory demands served between 1 March and 30 June 20020 and winding up petitions issued between 27 April and 30 June 2020, unless the creditor can prove that the inability to pay was not as a result of COVID-19.  The provisions will apply to all companies and are not limited to commercial tenants.

How this will play out in practice remains to be seen but, as drafted, the ability of a creditor to pursue an undisputed debt will be very severely limited.  Whilst there is provision for the Court to determine that the inability to pay is not COVID-19 related, the practical and evidential hurdles for a creditor to overcome seem very challenging.

MEETING AND FILING REQUIREMENTS

Some time extensions have already been put in place for compulsory filings at Companies House.  The Bill allows the Secretary of State to temporarily make further extensions of time.   The is also a relaxation in the requirement for companies to hold AGMs.