The Changing Restructuring Landscape – guest blog by Menzies LLP

6 July 2020

As the economy continues to grapple with the ever-changing curve ball that has been thrown at us in the shape of the Covid crisis, the Government enacted a new Corporate Insolvency and Governance Act 2020.

Menzies LLP provides a whistle-stop tour on the Act’s most pertinent points for members.

New Legislation

Moratorium

• A moratorium is protection from legal action against the company.
• The new legislation brings in an extended period (20 days and can be extended by a further 20 days).
• It also provides the introduction of a Monitor, which will be a licensed Insolvency Practitioner to monitor the moratorium.
• A new super priority of debt will be created, meaning debts arising during the moratorium must be paid first.
• Communications must state clearly that a company is using a moratorium, be it on the invoices, email, letter or website.
• If you deal with a company in a moratorium, you will be paid for costs/services incurred during the period of a moratorium.

Suspension of Wrongful Trading

• Directors will not be liable for Wrongful Trading during the period of 1 March 2020 to 30 September 2020.
• This is likely to be an area tested by unscrupulous directors and we should be mindful of those that test the boundaries.
• It does not remove the statutory duties of a company director and claims for misfeasance may still be brought.
• Maintain documented communications with your customers as these may well aid future claims brought by an Insolvency Practitioner against a director to recover more money.

Statutory Demands and Winding Up Petitions

• A period of grace has been created until 30 September 2020.
• This will allow companies that are struggling during this period to continue trading, without the risk of being wound up.
• A petition can only be issued if coronavirus can be proven not to have impacted the company’s performance.
• If you use this as a recovery tool, its re-introduction will serve as a useful prompt to review any bad or poor performing debt and take action where necessary.

Ipso Facto (Termination) Clauses

• Necessary suppliers to business cannot demand their arrears be paid in order to continue supplying and cannot terminate the current supply.
• The new legislation creates an exception to the rule if a) you qualify as a small company supplier or if b) the supply process causes hardship to your business.

Restructuring Plan

• A Court driven process introduced to aid viable businesses to survive, where impacted by the effect of coronavirus.
• It requires creditor approval of 75%, similar to a Company Voluntary Arrangement, but the Court can still impose a plan despite the creditors voting against it.
• It prevents action being taken to recover historic debt, but ongoing supply must be paid for.

This new legislation is brought in to deal with the impact of the Covid crisis and to help our economy back on its feet as lockdown eases. Some businesses will not survive despite these measures but those able to adapt will be those who are likely to survive.

For more on the above, and for further commercial considerations, please click the link below to view the recording of the presentation on 10 June 2020. Alternatively, for further details on the services that Menzies provides to creditors, please click here.

If you have any questions in relation to this webinar, please email Giuseppe Parla, Senior Manager in the Menzies Business Recovery team, at gparla@menzies.co.uk or call 0207 465 1919.