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Key Takeaways From the Corporate Insolvency and Governance Act 2020: The Temporary Measures

On 26 June 2020 the Corporate Insolvency and Governance Act 2020 (the Act) came into force, introducing a number of temporary measures to assist companies facing financial difficulties as a consequence of COVID-19. These temporary provisions apply retroactively to cover the period commencing 1 March 2020 (26 March 2020 with respect to corporate governance provisions) and ending on 30 September 2020 (the Relevant Period). The Relevant Period can be reduced or extended by up to six months for each measure if determined necessary by the Secretary of State. These temporary measures do not apply to certain excluded companies, such as financial institutions and regulated entities. 

Suspension of Wrongful Trading

The Act temporarily amends the existing wrongful trading provisions under sections 214 and 246ZB of the Insolvency Act 1986 by directing the Court to assume that a director is not responsible for any worsening of the financial position of the company or its creditors during the Relevant Period.

Directors can, however, still be found liable for wrongful trading during the Relevant Period, as the Act suspends neither liability for wrongful trading nor any liability to make a financial contribution in respect of any such liability, but rather sets limitations on the Court’s discretion to require a director to contribute. Where a director’s actions during the Relevant Period could amount to wrongful trading under the existing wrongful trading regime, the Court is directed to assume that the director is not responsible, meaning that in most cases the risk of a contribution order being made against the director in respect of the Relevant Period is minimal (and likely only to arise in situations where the director’s conduct is such that the Court is compelled to find the director liable — e.g. where the conduct may amount to fraudulent trading).

However, the amendment as enacted arguably does not give directors the respite they may have hoped for as their director duties, including the obligations to consider whether there is a reasonable prospect of avoiding insolvent liquidation or administration, continue, just with a reduced risk of a financial contribution liability in respect of wrongful trading. Therefore, where companies continue to trade through the COVID-19 pandemic, directors should be mindful to continue to consider their duties to the company, and in particular to creditors, at all times.

Statutory Demands and Winding-Up Petitions

The Act temporarily amends the rules governing statutory demands and winding-up proceedings for all companies to protect companies from hostile creditor action. 

The Act provides that any statutory demands served during the Relevant Period will be void against a company, irrespective of whether COVID-19 has had a financial impact on the company. 

The Act also amends the grounds on which creditors can present winding-up petitions during the Relevant Period. In summary, creditors are prevented from presenting a winding-up petition in respect of an unpaid statutory demand, a judgment debt or on the grounds of insolvency unless the creditor can demonstrate that the relevant ground for the petition would have arisen regardless of any impact of COVID-19 on the company. Ultimately, it is for the Court to determine whether COVID-19 has had a financial effect on the company but if the petitioning creditor has reasonable grounds for believing that COVID-19 has not had a financial effect on the company, or the company would have been insolvent even if COVID-19 had not had a financial effect on the company, the Court may still make a winding-up order.

In addition, any winding-up order made on or after 27 April 2020 but before the Act came into force on 26 June 2020 will be void where the order would not have been made had the Court applied the temporary rules under the Act.

Relaxation of Corporate Governance Requirements

The Act has also introduced certain temporary measures to give companies administrative breathing space and flexibility in light of COVID-19.

The Act temporarily extends the period in which public companies must file their annual accounts and reports with Companies House and also empowers the Secretary of State to temporarily grant additional Companies House filing deadline extensions. 

The Act provides that for the period 26 March 2020 to 30 September 2020 (which can be shortened, or extended by three months at a time) certain flexibilities will apply to how shareholder meetings are called and held irrespective of statutory and company constitutional requirements. These measures are largely aimed at preventing the need for physical meetings that could spread COVID-19 (e.g., meetings need not be held at any particular place, votes can be cast by electronic means or any other means, and quorum requirements can be met without members needing to be physically together).

Over the coming weeks, Faegre Drinker Biddle & Reath LLP will be continuing this series of briefings to provide an overview of the key takeaways of 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.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume X, Number 188

TRENDING LEGAL ANALYSIS


About this Author

Patrick Corr Financial Attorney Faegre Drinker UK
Partner

Patrick Corr delivers creative solutions and sound, business-minded legal guidance to corporations facing challenging financial circumstances. Widely recognized as a leader in the areas of insolvency and restructuring, Patrick has extensive experience in contentious and non-contentious corporate recovery and turnaround matters and regularly advises clients on their cross-border challenges and opportunities.

Clients describe Patrick as a top choice for cross-border matters, and he is an asset to clients navigating the restructuring, insolvency and liquidation laws of various European...

+44 (0) 20 3405 3453
Wayne Beck Financial Attorney Faegre Drinker Law Firm London
Associate

Wayne Beck brings a wide range of high-level experience to client engagements, including acting for creditors, creditor committees, debtors, insolvency practitioners, banks and other financial institutions, and purchasers of distressed assets in cross-border, multijurisdictional and domestic insolvency, corporate reorganization, recovery, turnaround and litigation matters.

Wayne has also assisted with the restructuring of a number of distressed securitizations and other structured finance products, including distressed collateralized debt obligations (CDOs), structured investment vehicles (SIVs) and commercial mortgage-backed securities (CMBS). He has also regularly advised clients on security and insolvency law aspects of commercial, structured and leveraged finance, particularly with respect to catastrophe bond transactions.

Representative Experience

  • A global card acquirer in connection with the proposed restructuring of a major global airline due to the impact of COVID-19.

  • A bank in its capacity as lender under a revolving credit facility and as swaps counterparty with Intu Properties plc.

  • Deutsche Bank AG, London Branch, as respondent in the latest phase of the landmark Lehman “Waterfall” litigation relating to priority between tranches of subordinated debt, release under a New York law settlement agreement and provability of subordinated future debts.

  • The largest creditor in the Irish law scheme of arrangement of Ballantyne Re plc, an Irish capital markets securitization of a closed block of U.S. life insurance policies – the first use of an Irish scheme to compromise New York law debt.

  • A global card acquirer in connection with the distressed acquisition of Flybe Limited by way of a members’ scheme of arrangement.

  • AlixPartners LLP in their capacity as interim manager of the Abraaj Growth Markets Health Fund following the filing for provisional liquidation of the Abraaj Fund.

  • A creditor in its challenge of the English law scheme of arrangement of Lehman Brothers International (Europe) (in administration).

  • Simon Appell of AlixPartners LLP and Eleanor Fisher of Kalo in their capacity as joint provisional liquidators of Ocean Rig UDW in its successful restructuring of approximately $3.8 billion of financial indebtedness, one of the world’s largest-ever restructurings. The restructuring was implemented through four separate and interconnected Cayman Islands law schemes of arrangement with Chapter 15 recognition.

  • Northwood Investors on the restructuring of a portfolio of properties formerly owned by a fund managed by Highcross Strategic Advisers Limited.

+44 (0) 20 3405 3450
Associate

Buvini Kularatne acts on a broad range of contentious and non-contentious, cross-border, financial restructuring, corporate recovery and turnaround matters. Buvini has a particular focus on distressed real estate work and has undertaken two secondments at a private equity real estate investment fund.

Representative Experience

Buvini has represented:

  • A creditor in relation to its position in the Thomas Cook proposed refinancing and eventual liquidation.
  • A creditor in relation to its position in the Casino refinancing.
  • An Irish...
44 (0) 20-3405-3452
Raphaela Constance Cotoulas Insolvency Attorney Faegre Drinker London
Associate

Raphaela Cotoulas has a wide range of experience in cross-border and domestic restructuring, insolvency, corporate rescue and distressed real estate matters. She has undertaken secondments at a private equity real estate investment fund and a global serviced office and co-working space provider.

Representative Experience

Raphaela has represented:

  • A global serviced office and co-working space provider in coordinating its continued internal restructuring in various European, Asia Pacific and African jurisdictions.

  • Exide in its internal group...

+44 (0) 20 3405 3443