On 25 June 2020, the Corporate Insolvency and Governance Act 2020 (the Act) received Royal Assent, and the majority of its provisions are now in force. The Act has introduced a number of permanent reforms and temporary measures, which together represent the most significant change to English insolvency law in nearly 20 years.
The permanent reforms include:
- A new restructuring plan, based largely on the existing procedure for Schemes of Arrangement but with the additional discretion for the Court to allow dissenting classes of creditors to be bound, provided one class of creditors approves the plan.
- Ipso Facto clauses (clauses which allow for the termination of an agreement on the basis that a party has entered into an insolvency process) are now unenforceable in a wide range of supplier contracts.
- A pre-insolvency, standalone moratorium for companies in financial distress, with certain carve-outs.
The temporary measures are intended to provide support and flexibility to businesses facing financial difficulty due to the economic impact of COVID-19. These measures will apply until 30 September 2020 with retrospective effect to 1 March 2020 (26 March 2020 in respect of corporate governance) and include the following:
- Suspension of wrongful trading rules.
- Suspension of the use of statutory demands as a basis for a winding up petition and issuance of winding up petitions where a company can demonstrate the cause was the financial effects of COVID-19.
- Relaxation of corporate governance requirements with respect to certain meeting and filing obligations.
Over the coming weeks, Faegre Drinker Biddle & Reath LLP will be publishing a series of client briefings and key takeaways on some of the most significant provisions of the Act. In the meantime, if you have any queries, please contact a member of the London corporate restructuring team.