On March 28, 2020[1], the UK Government announced that it will introduce new legislation extending the UK’s existing restructuring and insolvency laws to include:
- a new company moratorium to give companies a breathing space from creditors while they seek to rescue or restructure;
- protection of supplies to enable companies to trade during the moratorium; and
- a new restructuring plan, binding on creditors.
The Government previously consulted on these changes in 2018 (the Consultation) but did not introduce them[2]. (In the Consultation it was proposed that: the moratorium would be standalone procedure, preventing the enforcement of security, legal proceedings and creditor action; supplies would be protected by prohibiting reliance on contractual termination clauses based solely on insolvency events; and the new restructuring plan would be based upon the existing scheme of arrangement but with cross-class cram-down available as a means of binding dissenting creditors.)
The UK Government has also announced legislation to suspend temporarily the wrongful trading laws (under which company directors can become personally liable for business debts if the company subsequently fails)[3] in order to reassure directors faced with difficult decisions about the viability and continued trading of the company’s business. The existing laws for fraudulent trading[4] and the threat of director disqualification will continue to act as a deterrent against director misconduct[5].
The draft legislation has not yet been published but we welcome the Government’s steps to protect business and save livelihoods in the UK. In the meantime, prior to the implementation of this legislation, the UK’s existing administration regime can be used to stabilise distressed companies and protect them from creditors and, if necessary, implement a restructuring[6].
If you have any questions about the developments discussed above, please contact Michael Fiddy, Amy Jacks, Devi Shah, Jessica Walker, Alexandra Wood or Sheena Frazer.
[1] Press Release available here: https://www.gov.uk/government/news/regulations-temporarily-suspended-to-fast-track-supplies-of-ppe-to-nhs-staff-and-protect-companies-hit-by-covid-19
[2] Insolvency and Corporate Governance Consultation Outcome (26 August 2018) available at: https://www.gov.uk/government/consultations/insolvency-and-corporate-governance
[3] s214 Insolvency Act 1986
[4] s213 Insolvency Act 1986
[5] Company Directors Disqualification Act 1986
[6] Insolvency Lawyer’s Association: Rescue Administration: Saving Livelihoods, March 27, 2020 is available here: https://www.ilauk.com/news-events/news-view/changing-the-narrative-around-administration
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