The Corporate Insolvency and Governance Bill is the biggest change to the UK’s insolvency and restructuring framework for almost 20 years.
With a sharp recession on the cards, it provides breathing space for restructuring, and may well prove instrumental in helping businesses, including those in the renewables sector, that are facing insolvency to turn things around.
My colleague Rebecca Walker blogged about the temporary and permanent changes introduced by the Corporate Insolvency and Governance Bill last month when it was laid before parliament.
It’s been widely welcomed, particularly the permanent changes that were already under discussion well before COVID-19 including —
- A company moratorium where struggling companies, including those that are already insolvent, are given at least 20 days to put together a rescue plan
- Changes to termination clauses in supply contracts preventing suppliers from using contractual terms to terminate supply or increase prices if a company enters and insolvency process
- A mechanism for a company or its creditors to formulate a restructuring plan.
The moratorium, where specific legal actions are restricted for a period of time to allow for a restructuring or insolvency process to be put in place, is perhaps the most significant change.
This essentially suspends a range of creditors’ abilities including chasing debts through the courts or enforcing securities.
With organisations across the board under pressure as a result of the coronavirus pandemic, the moratorium gives struggling businesses a 20-day window initially to develop a rescue plan. Directors can extend this by another 20 days, or for up to a year with creditor consent.
The company remains under director control and no legal action can be taken against it without court consent. Firms will need an insolvency practitioner to act as monitor, who will assess throughout the process if a rescue is likely: providing a key safeguard for concerned creditors.
The monitor will also have considerable control over which debts can be paid and what property can be sold. If creditors aren’t happy with these decisions, they can apply to court.
The moratorium ends if the company enters into a compromise, arrangement or relevant insolvency procedure.
The restructuring plan
The new restructuring plan allows struggling companies, creditors and members to propose an alternative rescue package.
It allows for complex debt arrangements to be restructured and supports the introduction of new rescue finance.
A restructuring plan will need creditor consent — 75% for each class of creditor — and court approval; however, it can be sanctioned by the court as fair and equitable even if not all classes of creditors vote for it.
The court would need to be satisfied the creditors would be no worse off than if the company entered into an alternative insolvency procedure.
These permanent changes could not have come at a more opportune time. They’ve been widely welcomed and are seen as underpinning efforts to help businesses navigate the enormous challenge the coronavirus pandemic has presented.
Many, it seems, will agree with R3 president Colin Haig who said the legislation “…comes not a minute too soon.”
Aberdeen-based partner Tim Thomas specialises in commercial litigation and insolvency law at Ledingham Chalmers. He is highly experienced in a range of commercial disputes in Scotland’s sheriff court and Court of Session.