In Newsletters
JUNE 29th 2020

Corporate Insolvency and
Governance Act 2020

On 25 June 2020, the Corporate Insolvency and Governance Act 2020 (the Act) received royal assent and came into force on 26 June 2020. The measures introduced by the Act will relieve the burden on businesses during the coronavirus (COVID-19) outbreak and allow them to focus all their efforts on continuing to operate.
 
The CIGA 2020 includes seven main provisions:
  • temporary restrictions on winding-up petitions—the Government has legislated to temporarily prevent winding up proceedings being taken on the basis of unsatisfied statutory demands and to temporarily stop winding up proceedings where coronavirus has had a financial effect on the company which has caused the grounds for the proceedings. The CIGA 2020 provides that a winding-up petition based on section 123(1)(a) of the Insolvency Act 1986 (IA 1986) (ie an unsatisfied statutory demand in respect of a debt exceeding £750) that relates to a statutory demand served on or after 1 March 2020 cannot be presented by a creditor during the period beginning on 27 April 2020 (it has retrospective effect) until 30 September 2020. A petition may not be presented unless the creditor has reasonable grounds for believing that (a) coronavirus has not had a financial effect on the debtor, or (b) the debtor would have been unable to pay its debts even if coronavirus had not had a financial effect on the debtor. The CIGA 2020 makes provision where a winding-up order has been made during the relevant period
  • introduction of a company moratorium—directors of insolvent companies or companies that are likely to become insolvent can obtain a 20 business day moratorium period to allow viable businesses time to restructure or seek new investment free from creditor action. The moratorium period may also be extended. 
  • introduction of a restructuring plan—the new restructuring plan closely resembles the existing English ‘scheme of arrangement’ allowing a company to bind all creditors—including junior classes of creditors even if they vote against the plan—through the use of a cross-class cram down provision. 
  • temporary suspension of wrongful trading liability—the CIGA 2020 temporarily makes changes to the wrongful trading provisions to give company directors greater confidence to use their best endeavours to continue to trade during this pandemic emergency, without the threat of personal liability should the company ultimately fall into insolvency. The changes are back-dated to 1 March 2020 and end on 30 September 2020. 
  • prohibition on termination clauses in supply contracts—the CIGA 2020 introduces a permanent change to the use of termination clauses in supply contracts. As a result of the measure, where a company has entered an insolvency or restructuring procedure or obtains a moratorium, the company’s suppliers of goods and services (with certain prescribed exceptions) will not be able to rely 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 the insolvency process has commenced, but is not required to pay outstanding amounts due for past supplies while it is arranging its rescue plan. 
  • temporary changes to holding annual general meetings and general meetings—the CIGA 2020 temporarily allows those companies that are under a legal duty to hold an AGM or GM to hold a meeting by other means—even if their constitution would not normally allow it.
  • extensions to some Companies House filing requirements—companies are required to file prescribed documents by fixed deadlines at Companies House each year. Missing the deadline automatically results in a financial penalty and can result in criminal sanctions for the company’s directors or the company being struck off the register of companies. The CIGA 2020 allows the Secretary of State to temporarily make further extensions to deadlines for certain filings which include: accounts under CA 2006, Pt 15, annual confirmation statements under CA 2006, Pt 24, notices of related relevant events under the CA 2006, and registration of charges under CA 2006, Pt 25.

Nick’s View: – This is all sensible stuff and good news in the short term. In particular temporary restrictions on winding-up petitions will allow companies the space to breath and also to allow them the time to hold meaningful negotiations with landlords without having a gun held to their heads. Quite what happens in September remains to be seen!

PCA and the Code of Practice

The Licensees Association has again written to the PCA urging that the commitment of the regulated pub companies is sought in relation to adopting the government’s voluntary Code of Practice. The letter has been supported by operators of over 250 pub, bars and hotels.

The commitment to the regulated pub companies is essential if meaningful, fair, open and honest negotiations on rents is to take place in good faith. We are already seeing evidence that gunboat negotiations are becoming the norm sadly and fear that this one sided negotiation based on the serious imbalance of power in the landlord and tenant relationship is leading to tenants accepting bad deals for fear of their removal. That’s not a good faith negotiation and we will be highlighting such practices to the PCA at a later date. 

Nick’s View: – Okay we all know that the voluntary code is not what we wanted, a mandatory one would have been far better, but we are where we are. In seeking assurance that the regulated pub companies will adopt the voluntary code at least means we can start to have some semblance of good faith negotiation rather than the take it or leave it deals we are currently seeing. Of course should we not get the reassurances we seek then we will quickly be reverting back to government with the evidence that their code isn’t the panacea they clearly wished it to be.

Want to know more? Head over to www.licensees.org or to talk to me directly please drop me a line at nick@licensees.org – we deserve an Association that has independent businesses at its heart.