Corporate Insolvency and Governance Act becomes law
The Corporate Insolvency and Governance Act received Royal Assent on Friday 26 June and has now come into force. This legislation was fast-tracked through parliament in just over a month to address the financial distress many businesses have encountered during the COVID-19 pandemic, and contains wide-ranging permanent reforms to insolvency law as well as specific temporary measures to address the current crisis.
I outlined the key provisions of the then proposed legislation in my earlier blog post here, and the Act was ultimately passed with only minor amendments. The main change is that the period of temporary protection for the relaxation of wrongful trading liability, prohibition on statutory demands and winding-up petitions has been extended to 30 September 2020 from the original date of 30 June 2020.
Another important change to the rules governing the new moratorium protection prevents lenders from accelerating their debt during the moratorium in order to claim ‘super priority’ status if the company subsequently enters an insolvency process.
Whilst the permanent reforms had been discussed and planned for several years, the publication of the legislation and inclusion of the temporary protection measures was fast-tracked in order to mitigate the devastation to businesses caused by the COVID-19 lock-down. It is intended to provide a lifeline to companies that could well otherwise have failed completely: the extended temporary protection period until 30 September provides the emergency CPR necessary for struggling businesses to avoid imminent insolvency, and the new tools such as the moratorium and restructuring plan offer further options to help companies hopefully survive and recover.