COVID-19: The Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act came into force on 26 June 2020. Certain sections have subsequently been extended by the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020.

The measures contained in this new act are designed as a response to some of the problems encountered by companies as a result of coronavirus (COVID-19). The aim is to relieve some of the burden which businesses are facing during the pandemic, enabling them to continue their day to day operations.

In brief, the legislation has the following effects:

• Introduction of new corporate restructuring tools to the insolvency regime to improve the chances of business survival for companies struggling from the fallout of COVID-19.
• Temporary suspension of certain parts of insolvency law to aid company directors.
• Rules around Annual General Meetings (AGMs) and other company meetings take into account social distancing requirements pertaining to coronavirus.
• Provision of extension for annual confirmation statements.
• Extension on filing requirements for changes to company (eg change of company directors or people with significant control).
• More time to file company accounts (for most companies).

What are the main changes under the Corporate Insolvency and Governance Act 2020?

Moratorium
The Act introduces a new moratorium to provide companies with time to find a way to rescue the business, preventing creditors from taking action during this time. Part A1 “contains a provision that enables an eligible company, in certain circumstances, to obtain a moratorium, giving it various protections from creditors”. During the period of the moratorium, under s A21 the following restrictions apply:

“(a) no petition may be presented for the winding up of the company, except by the directors,

(b) no resolution may be passed for the voluntary winding up of the company under section 84(1)(a),

(c) a resolution for the voluntary winding up of the company under section 84(1)(b) may be passed only if the resolution is recommended by the directors,

(d) no order may be made for the winding up of the company, except on a petition by the directors,

(e) no administration application may be made in respect of the company, except by the directors,

(f) no notice of intention to appoint an administrator of the company under paragraph 14 or 22(1) of Schedule B1 may be filed with the court,

(g) no administrator of the company may be appointed under paragraph 14 or 22(1) of Schedule B1, and

(h) no administrative receiver of the company may be appointed.”

Furthermore, under s A21: “A landlord or other person to whom rent is payable may not exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company, except with the permission of the court”.

What this essentially means is that the business can continue to trade during the period of the moratorium. Day to day running of the company remains with the directors. However, a ‘monitor’ (essentially an insolvency practitioner) is appointed to oversee the moratorium and they will need to supervise the directors and file notices with Companies House during the period of the moratorium.

The initial period of a moratorium is 20 business days. However, it can be extended by the directors if they file a notice with the court.

Restructuring plan
Schedule 9 of the Act “contains provision about arrangements and reconstructions for companies in financial difficulty.” This essentially introduces a new restructuring process sanctioned by the court that will bind creditors to a proposed restructuring plan. It can be used with or without the protection of the abovementioned moratorium. A restructuring plan will not take effect until a copy of the court order has been delivered to Companies House; this will then be registered against the company.

Winding up petitions
Until 31 December 2020, irrespective of whether there is a moratorium in place, a creditor cannot present winding up petitions, unless “the creditor has reasonable grounds for believing that … coronavirus has not had a financial effect on the company” or that the company would have been unable to pay their debts irrespective of COVID-19 (Schedule 10, Part 2).

Wrongful trading
There was a suspension of liability for wrongful trading between 1 March 2020 and 30 September 2020. Under s 12 of the Act, during this period, the court was “to assume that the person is not responsible for any worsening of the financial position of the company or its creditors that occurs during the relevant period”.

Filing accounts
Companies and other types of business registered at Companies House will get more time to file accounts and provide notice of other updates to their company. Deadline extensions to filings apply to all the following sections of Companies Act 2006:

• section 87 (notice of change of address of registered office);
• section 114 (notice of place where register of members is kept);
• section 162 (notice of place where register of directors is kept);
• section 167 (notice of change in directors etc);
• section 275 (notice of place where register of secretaries is kept);
• section 276 (notice of change in secretaries etc);
• section 442 (period allowed for filing accounts);
• section 790M (register of people with significant control);
• section 790N (notice of place where PSC register is kept);
• section 790VA (notice of change to the PSC register);
• section 853A(1) (confirmation statements);
• section 859A (registration of charge);
• section 859B (registration of charge contained in debentures);
• section 859Q (notice of place where copies of instruments creating charges are kept);

NB: Any extensions to deadlines will be updated automatically; there is no requirement to apply for an extension. Companies which have previously applied to extend their filing submission deadlines may not be eligible for a further extension under the new act.

Meetings
Schedule 14 of the Corporate Insolvency and Governance Act 2020 eased restrictions regarding company meetings (whether Annual General Meetings or other formal company meetings) to take account of the social distancing measures being taken to counter Coronavirus. The key points are as follows:

• (3) The meeting need not be held at any particular place.
• (4)The meeting may be held, and any votes may be permitted to be cast, by electronic means or any other means.
• (5)The meeting may be held without any number of those participating in the meeting being together at the same place.
• (6)A member of the qualifying body does not have a right—
• (a)to attend the meeting in person,
• (b)to participate in the meeting other than by voting, or
• (c)to vote by particular means.

Although this part of the act was originally only planned to apply between 26 March 2020 and 30 September 2020, it was subsequently extended until 30 December 2020.

Applying for a moratorium under the Corporate Insolvency and Governance Act 2020

As discussed above, a moratorium can provide breathing space to companies which are struggling financially as a result of COVID-19, enabling them to explore rescue and restructuring options without having to deal with immediate creditor action.

In general, insolvency proceedings cannot be instigated against the company during the moratorium period (apart from a few limited exceptions). The moratorium also prevents legal action being taken against a company without permission from the court (with the exception of employment tribunal proceedings or proceedings between an employer and a worker).

How to apply for a moratorium
A moratorium can be applied for by companies and LLPs registered in England and Wales, Scotland and Northern Ireland.

Company directors must apply for a moratorium by filing relevant documents with court (an out of court process). If there is an outstanding winding up petition or the company is based overseas, it will need to make an application in court.

Once a moratorium has been granted, the company will have 20 business days to consider rescue options. The moratorium will need to be managed by a licenced insolvency practitioner (known as a ‘monitor’).

Extending a moratorium
A moratorium can be extended for a further 20 business days – or for a longer period if consent has been obtained from the creditor/s – by filing relevant statements with the court.

Any extension must be requested after the first 15 business days – but before the expiry of the moratorium.

What must be sent to Companies House?
Any relevant notices must be delivered to Companies House as quickly as possible – and the monitor must deliver notice of the commencement of a moratorium to Companies House. Notice will also need to be submitted if:

• the moratorium is extended;
• the moratorium is terminated early;
• the monitor is replaced, or an additional monitor is appointed; or
• the court makes an order giving permission for the disposal of property.

The moratorium will automatically expire at the end of the initial 20 business day period (or any relevant extension period). There is no requirement for the monitor to deliver a notice stating that the moratorium has ended automatically (ie by time) – only if it is for another reason (eg it has been terminated early by the monitor)