Insolvency Law Update - COVID-19
As I’m sure many are aware, the Business Secretary Alok Sharma has announced changes to insolvency law to deal with the current crisis and importantly ensure that companies are adequately protected from a lack of business during the present time and for the foreseeable future.
Wrongful Trading
The rules on wrongful trading under the Insolvency Act 1986 are to be suspended, which was announced on 28 March 2020. This will apply retrospectively from the 1 March 2020 for a period of three months. This could be extended if the lockdown continues. It’s hard for the government to give a concrete date when this will stop applying as the current lockdown hasn’t been given a concrete date. It is assumed it will be under constant review and will be extended appropriately as the situation requires. This removes the prospect that directors may face personal liability during COVID-19. Existing laws for fraudulent trading and threat of director disqualification remain in force and as a deterrent for those who seek to take advantage of the situation and for director misconduct.
This is welcomed and needed to provide company directors and shareholders some clarification and comfort.
New Restructuring Plan
The Government in August 2018 announced plans to introduce new restructuring procedures. New legislation will implement these due to COVID-19. The changes allow UK companies to undergo a rescue or restructure process to continue trading. This will further enable companies to continue to buy ‘much-needed’ supplies while attempting a rescue. The examples given were energy, raw materials or broadband. Further tools brought in by the UK’s Insolvency Framework will add new restructuring tools. This includes a moratorium for companies giving them breathing space from creditors who seek to enforce their debts for a period whilst pursuing rescue. Supplies will be protected to allow trading during the moratorium and a new restricting plan, which bind creditors to the plan.
The devil will be in the detail for a lot of this.
CLLS
The Insolvency Law Committee of the City of London Law Society have also published a paper on the 26 March 2020 to save businesses during this period. Notably, they want to bring forward the corporate insolvency reforms of 2018 and extend the accessibility of the administration moratorium on COVID-19 grounds. This will probably be a better short-term fix than bringing all the new insolvency procedures suggested by the Government.
The Courts
The winding up and bankruptcy petitions are now adjourned until the June 2020. Blocks of 20 petitions will be heard each week starting on the 17 June 2020 to help with the huge backlog of cases that will be present.
On 25 March 2020, 2 winding-up applications were heard. They were heard by telephone and Skype respectively in line with the Protocol set out by the HMCTS for remote hearings.