Covid-19: new rules to protect businesses from insolvency

Major new rules and regulations will protect businesses affected by Covid-19 from insolvency, it has been announced.

It comes after the Corporate Insolvency and Governance Bill received royal assent last week, providing a lifeline for businesses unable to pay their bills due to the pandemic.

According to the Government, the new legislation will introduce “new corporate restructuring tools to the insolvency and restructuring regime to give companies the breathing space and tools required to maximise their chance of survival”, as well as “temporarily suspend parts of insolvency law to support directors to continue trading through the emergency without the threat of personal liability for wrongful trading and to protect companies from creditor action”.

In practice, this means temporarily prohibiting termination clauses that engage on entering an insolvency procedure, preventing suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process, and removing the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency, among other measures.

Specifically, the Bill introduces temporary provisions to void statutory demands made between 1 March 2020 and 30 June, as well as restrict winding up petitions from 27 April 2020 to 30 June 2020.

The new rules will also “amend Company Law and other legislation to provide companies and other bodies with temporary easements on company filing and annual general meetings (AGMs)”.

This will allow businesses to postpone shareholder meetings and extend filing deadlines.

Commenting on the measures, Business Secretary Alok Sharma said: “Our proposals have been widely welcomed by business groups. The Bill will help companies that were trading successfully before the COVID-19 emergency to protect jobs and put them in the best possible position to bounce back.”

Welcoming the changes, the Federation of Small Businesses (FSB) said the new legislation will be an “important step” to helping small firms during the crisis.

“The measures will immediately go some way to mitigate some of the problems small businesses are facing, such as the relaxation of wrongful trading rules which will allow directors of struggling companies to continue trading without fear of legal repercussions. The company moratorium, filing extensions and voiding of statutory demands are particularly important for smaller businesses, it is important that these provisions continue for as long as is necessary,” said FSB chairman Mike Cherry.

For more information about the Corporate Insolvency and Governance Bill and what it means for business, please click here.

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