Government announces extension of insolvency measures

The Government has extended the measures put in place by the Corporate Insolvency and Governance Act in order to protect businesses from insolvency, giving them a much-needed breathing space during the pandemic.

Many changes to the Corporate Insolvency and Governance Act were due to expire at the end of September. However, as of 24th September, the measures have been extended to the end of December 2020 and in some cases to March 2021.

Summary of temporary measures:

  • Companies with any obligations to hold AGMs will continue to have the flexibility to hold these meetings virtually until 30 December 2020, meaning shareholders can continue to examine company papers and vote on important issues remotely.
  • Termination clauses are still prohibited. This will continue to stop creditors from ceasing their supply or requesting additional payments while a company is going through a rescue process. 
    • Small suppliers will remain exempted from the obligation to supply until 30 March 2021 so that they can protect their own business if necessary.
  • Statutory demands and winding-up petitions are still restricted until 31 December 2020 to protect companies from aggressive creditor enforcement action as a result of any coronavirus related debts.
  • The modifications to the new moratorium procedure will also be extended until 30 March 2021
    • A company can enter into a moratorium if they have been subject to a CVA or any other insolvency procedure in the previous 12 months. 
    • Measures will also ease access for companies subject to a winding-up petition.

The Government’s full announcement can be found, including comment from Business Minister, Lord Callanan here.

The relaxation of Wrongful Trading provisions against company Directors will not be extended beyond the 30 September 2020.

A reminder for directors (and the wider restructuring community) that the wrongful trading suspension ended on the 30 September. Any worsening of a company’s financial condition taking place from 1 October will be relevant to an assessment of a director’s contribution if found guilty of wrongful trading. 

Company directors need to ensure they are confident in their business plan and financial information. If they choose to continue to trade, regardless of any uncertainties the business will continue to face, it is crucial they seek advice at the earliest opportunity if they anticipate or know that the company has financial issues.

Directors are at risk of being found to be personally accountable if found to have continued trading, worsening creditors positions in the company when they should have known that business failure was inevitable. The Government will do everything in their power to recover CBILs or Bounce Back Loans funding paid to a company where the directors knew of insolvent trading.

As Insolvency Practitioners, we’re required to look closely at what the directors of a company knew at the time of taking out a government-backed business loan and how they have deployed the funds.

Further information for businesses

  • Businesses will be protected from the threat of eviction until the end of the year following an extension to the commercial eviction ban announced on 16 September.
    • The Government have advised that where businesses can pay their rent, they should do so, but for those struggling the most during the pandemic, the extension will help protect companies working to pay rent and support the thousands of employees feel more secure about their jobs. Find out more in the Code of Practice which was initially published in June.
  • The new Job Support Scheme will support businesses to keep employees as part of their workforce by contributing to the wages of those who are working less than their regular, contracted hours.
    • The 6-month scheme will subsidise employment costs where businesses are functioning with less demand due to the impact of Covid-19 with the intention to support viable jobs by keeping employees in employment over the Winter.

If you need to discuss the above or have any other questions, you can contact our partners and team or send us a query via our contact form.