Corporate Insolvency and Governance Act 2020 – extensions relating to corporate governance and insolvency law requirements

In June 2020 the Corporate Insolvency and Governance Act 2020 (“CIGA”) made some temporary changes to insolvency and corporate governance law.

Services
Charity, Real Estate
Type
Updates

These were described in this Bates Wells update – and were originally designed to last until 30 September 2020.  New secondary legislation – now in force – means that many of these changes will now continue until either December or the New Year.

Companies and charities facing financial difficulty, or finding it hard to hold members’ meetings, may be able to take advantage of the continuing flexibility. 

Corporate governance and members’ meetings

CIGA introduced more flexible rules allowing  AGMs and other general meetings to be held electronically, even if this is not authorised by their governing document.   These relaxations now apply until 30 December 2020. 

These measures provide a helpful opportunity for companies, charitable incorporated organisations and registered societies to amend their governing documents so that members’ meetings can be held more flexibly in the future.

CIGA also allowed AGMs to be postponed until 30 September 2020: this period has not been extended

Insolvency law

Some of the temporary insolvency measures introduced by CIGA have been extended beyond 30 September 2020.   

  • Wrongful trading

Notably, the temporary suspension of liability for wrongful trading is not being extended and will expire automatically on 30 September 2020.   This means that liquidators and administrators will be able to bring claims against company directors for wrongful trading for losses caused by trading on and after 1 October 2020.

  •  Winding-up petitions

The prohibition on the presentation of winding-up petitions is extended until 31 December 2020.

This means that no winding up petition can be presented by a creditor in respect of a statutory demand served between 1 March 2020 and 31 December 2020. This is irrespective of whether Covid-19 has had any financial impact on the debtor company.

Also, between 27 April 2020 and 31 December 2020, creditors may not present a winding up petition against a debtor company, without “reasonable grounds for believing that it would be deemed insolvent even if Covid-19 hadn’t had a financial effect on it”.

In addition, the court itself may only make a winding up order between 27 April 2020 and 31 December 2020 if the judge is him/herself satisfied that the company would be deemed insolvent even if Covid-19 hadn’t had a financial effect on it.

–           Moratorium

CIGA introduced some new permanent changes to company insolvency, including a new company moratorium process.  This allows a company a short period to pursue a rescue plan without creditors being able to take legal action, under the supervision of a third party monitor.

CIGA also temporarily relaxed some of the conditions for obtaining a moratorium.  Some – but not all – of these relaxations have been extended to 30 March 2021. Significantly, from now until the end of this period, the monitor will no longer be able to ignore the economic impact of coronavirus when considering whether the company is likely to be rescued as a going concern.  

  • Supply contracts

CIGA introduced new rules suspending clauses in supply contracts which provide for termination of the contract on insolvency, but also imposed a temporary exemption for small suppliers. This exemption is now extended to 30 March 2021 to provide a degree of protection for smaller suppliers.

Implications for charities

The relaxation around corporate governance and meetings will be a great help, especially with the recent Government guidance on working from home. It will also give charities the chance to amend their governing documents to cater for the move towards a more virtual way of working even after the temporary flexibilities offered by the CIGA are no longer available.

The Government has chosen to extend some measures, while letting others remain the same; providing security and certainty to those who need it the most.

With respect to the selective extensions in relation to the insolvency aspects of CIGA, it is interesting to note the Government’s change in focus towards helping organisations which are likely to be viable, rather than all organisations that have been affected by the pandemic, but which may be in terminal decline.

Implications for landlords and tenants

In our August article,  we said that landlords may not welcome CIGA as much as tenants, as the provisions seek to protect debtors.

Landlords will find the extensions on the ability to serve statutory demands for unpaid rent and on presenting winding-up petitions hard to swallow especially when they are themselves struggling and have their own obligations, for example, to investors and lenders. Tenants, on the other hand, will find the extensions a welcome relief as they allow tenants more time to continue and manage their business and potentially avoid insolvency.

The hope is for all parties to find a balance to help each other through these unprecedented times.

If you have any questions, please do get in touch with Simon Steeden, Sung-Hyui Park or Amanda Gray.


This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of September 29, 2020.