What mobility companies need-to-know about pending changes to insolvency and company law
On the 20th May, the government introduced its Corporate Insolvency and Governance Bill in Parliament, setting out amends to insolvency and company law designed to help businesses manage the impact and challenges caused by coronavirus.
Consisting of eight key measures (six insolvency measures and two corporate governance measures), the Bill includes temporary and permanent changes aimed at preventing viable businesses from collapsing.
Business Secretary Alok Sharma said: “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.”
Temporary measures
Temporary measures that companies in the mobility sector should be aware of include restrictions on winding-up petitions and relaxation of personal liability for wrongful trading.
Winding-up petitions
Winding-up petitions will be voided if presented to the court between the 27th April and 30th June 2020 unless the petitioner can prove that coronavirus has not had a financial impact on the company in question.
Liability for wrongful trading
In addition, the Bill will allow for a relaxation of liability for wrongful trading until the end of June, enabling directors of companies struggling to continue trading without the fear of personal liability.
Filing accounts
Companies will also be able to apply to extend deadlines for filing accounts for three-months. Importantly, businesses must apply for this extension – it will not be granted automatically.
Permanent measures
Company moratorium
A permanent measure set out in the Bill includes a company moratorium providing 20 business days of breathing space against creditor action – extendable to 40 business days at the agreement of creditors or the court.
It is hoped the measure will enable companies to arrange a rescue plan during that time, with the company remaining under the control of its directors during the moratorium whilst the process is overseen by a monitor who must be a licensed insolvency practitioner.
Dentons, the world’s largest law firm, says “the moratorium will give companies a “payment holiday”, impose restrictions on what the company and its directors may do (unless they obtain the monitor’s or the court’s consent), and limit what enforcement actions creditors may take during this time.”
Suspension of termination clauses
Also introduced in the Bill is a permanent change to the use of termination clauses in supply contracts.
The change prevents suppliers of a company currently undergoing an insolvency procedure or under the protection of the company moratorium from relying on contractual terms to stop supplying, or vary the contract terms with the company, for example, increasing the price of supplies.
“The customer is required to pay for any supplies made once it is in the insolvency process but is not required to pay outstanding amounts due for past supplies while it is arranging its rescue plan,” states the government.
The measure also contains safeguards to ensure that suppliers can be relieved of the requirement to supply if it causes hardship to their business and there will also be a temporary exemption for small company suppliers during the emergency.
Coming soon
Having had its first reading in Parliament, MPs will now consider all stages of the Bill on the 3rd of June where it is expected that it will be fast-tracked to become law by July.
Jonathan Geldart, Director General of the Institute of Directors, said: “Directors have significant legal obligations, and this Bill provides some reassurance that those who act responsibly won’t be caught out by the insolvency system. It’s crucial that directors are able to sustain their organisations and the people who rely on them during these difficult times.”
Mike Cherry, National Chair of the Federation of Small Business, said: “The incoming Corporate Insolvency and Governance Bill will be an important step to helping many small firms during this 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.”
