The Bill contains a number of temporary changes to prevent winding up petitions and statutory demands, together with the temporary suspension of wrongful trading provisions until 30 June 2020 at the earliest – allowing directors to continue trading without the threat of personal liability.
In addition, the Bill will ease regulatory requirements enabling companies to delay annual general meetings until late September 2020 or hold “closed AGMs” online.
Benjamin Wiles, managing director, restructuring advisory, Duff and Phelps, said: “The Bill itself contains a number of temporary and permanent provisions to assist companies through the Covid-19 crisis.
“However, some of these proposals have been in consultation for some time, originally outlined in a March 2018 consultation, albeit with some significant changes. These reforms also reflect a number of provisions contained in a European Commission Directive from November 2016.”
He added: “Of the three permanent changes to the insolvency regime, the most impactful is the introduction of a “company moratorium.” This provision will give distressed companies which are viable 20 business days, extendable to 40 or longer by agreement, to pursue a rescue plan.”
To qualify for the moratorium, a company must be unable to pay its debts and it is likely that a moratorium would result in a rescue of the business as a going concern.
The exit from the moratorium may be achieved in a number of ways including a rescue, sale, refinance, Company Voluntary Arrangement (CVA), scheme of arrangement or restructuring plan.
Wiles concluded: “Whilst the company remains under the control of its directors throughout the moratorium, it is envisaged the appointed ‘monitor,’ who must be a licensed insolvency practitioner, will be comfortable that a rescue is achievable and then monitor the process throughout.”
“This means that protection is provided to the company and the creditors are unable to commence legal action via winding up petitions or by other enforcement avenues available to them.”