On 25 June 2020 the Corporate Insolvency and Governance Act received Royal Assent, making some of the biggest changes to UK insolvency laws in the last 30 years. We have written several blogs covering the changes and how they help support distressed businesses, impact suppliers, lenders and other third parties and have tracked the changes through the UK parliament.
Largely because of the need to implement temporary changes to help support business in distressed as a result of COVID-19 the Bill was fast tracked through parliament leaving limited time for scrutiny and change. There are powers in the Act to enable quick changes to the Act, if the procedures don’t work as intended. These will enable loop holes to be closed and gaps to be filled.
There were some changes to the Bill as it progressed through the Lords. The key ones being:
- an extension to the date the temporary measures are in force. The temporary measures are now in place until at least 30 September 2020 meaning that wrongful trading laws are relaxed until then, the prohibition on presenting winding up petitions where non payment is COVID-19 related remain in place, a relaxation of the entry criteria for businesses wishing to take advantage of the new moratorium continue to apply as well as exemptions for small suppliers to the ipso facto regime.
- where a company has an eligible or occupational pension scheme the PPF and Pensions Regulator will now be entitled to certain notices and notifications if a company proposes a new moratorium or a restructuring plan; and
- perhaps most notably the Act now carves out accelerated bank debt from the provisions on super priority. A lender is not prohibited from accelerating its debt (given that entering into a new moratorium or proposing a restructuring plan is likely to be an event of default) but any debt that is accelerated is now specifically carved out from the super priority rules if a company enters into administration or liquidation within 12 weeks of the moratorium debt coming to an end. This change also means that in a restructuring plan, accelerated debt can now be crammed down. However the fact that a lender can accelerate (the Lords did not agree proposals to change this) means that a lender could potentially still thwart a moratorium.
We have updated our quick guides to the moratorium, the restructuring plan and ipso facto. Our alert considering the impact of the moratorium on secured lenders and also what the changes to the wrongful trading laws mean in real terms for directors. Each of the updated guides can be accessed by clicking on the links in this blog.