The Insolvency Act - New Deadlines
On 24th September, it was announced that measures set out in the Corporate Insolvency and Governance Act at the start of June would be extended to help businesses who were still struggling with the effects of the coronavirus pandemic. The changes, which were intended to protect businesses from insolvency, were due to expire on 30th September 2020.
The measures and the extension dates include:
Companies and other qualifying bodies that have an obligation to hold Annual General Meetings will now have the flexibility to hold these meetings virtually until 30th December 2020. Shareholders can continue to examine company papers and vote on important issues remotely.
Statutory demands and winding-up petitions will continue to be restricted until 31st December 2020. This is intended to protect companies from aggressive creditor enforcement action as a result of debts related to the coronavirus pandemic.
The prohibition on termination clauses continues. This will mean that suppliers will be stopped from ceasing their supply or requesting additional payments while a company is going through a rescue process. However, small suppliers will be exempt from the obligation to supply until 30th March 2021 so that they can protect their business if necessary.
The modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until 30th March 2021. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months. Measures will also ease access for companies subject to a winding up petition. The temporary moratorium rules will also be extended to 30th March 2021.
Businesses will be protected from the threat of eviction until the end of the year following an extension to the commercial eviction ban announced on 16th September 2020. This extension will bring a much-needed level of protection for businesses that are currently having difficulty paying their rent because of the effects of COVID-19 on their income. It will also reassure their employees who may have been concerned about job security.
These changes are likely to be welcomed by those whose businesses have been affected by the COVID-19 pandemic, offering further breathing space and the opportunity for financial recovery. However, companies and directors should be aware that these measures may only offer temporary respite and, therefore, they should still be mindful of any underlying obligations and liabilities which continue to be owed when considering the viability of the business in the future.
In particular, company directors should note that the liability for wrongful trading, which was temporarily disapplied until 30th September 2020, has now recommenced. Wrongful trading occurs where, prior to a company entering into a form of insolvency, its director(s) knew or ought to have known that there was no reasonable prospect of the company avoiding insolvency and where, upon reaching that point, the director failed to take every step with a view to minimising further potential liabilities to the company’s assets or creditors.
Accordingly, whilst these measures will likely offer some comfort to those businesses struggling as a result of the COVID-19 pandemic, consideration will need to be given to the extent and the way in which those problems can be overcome in the short, medium and long term future rather than storing up problems for later down the line.
Grace Connor, Solicitor at rradar