The authors had previously highlighted the UK Government’s intention to introduce: (i) a number of reforms to the UK’s insolvency framework; and (ii) a series of temporary changes to the corporate governance requirements for companies and other entities arising as a result of the impact of Covid-19. In this QuickStudy, we set out the key features of the draft Corporate Insolvency and Governance Bill published on 20 May 2020 (the “CIGB”) in furtherance of the Government’s stated aim to:
“…introduce new corporate restructuring tools to the insolvency and restructuring regime to give companies the breathing space and tools required to maximise their chance of survival;
…temporarily suspend parts of insolvency law to support directors to continue trading through the emergency without the threat of personal liability and to protect companies from aggressive creditor action; and
…amend Company Law and other legislation to provide companies and other bodies with temporary easements on company filing and annual general meetings (which will extend to charitable incorporated organisations and mutual societies) thus allowing them to focus their resources on continuing operations in this uncertain time…”
Key provisions of the CIGB
The CIGB comprises six insolvency measures and two corporate governance measures:
This could well alter the balance of creditor suffering in the anticipated corporate distress tsunami. Landlords have recently borne the brunt of the pain in restructurings, especially in the retail sector. Banks and bondholders will probably fare comparatively worse in the next round.
Corporate governance measures:
Financial services firms
The government has indicated that certain financial services firms and contracts have been excluded from some of these reforms on the basis that financial services regulators have existing powers to intervene in the business of financial services firms in distress, and the UK has a number of existing special insolvency regimes for certain of these firms. In our view, these exclusions should go some way towards safeguarding that these existing special insolvency regimes are unaffected, and that stakeholders in the financial markets have the legal certainty needed to facilitate the efficient functioning of financial markets.
The CIGB has only just been introduced in Parliament – its next reading is scheduled to occur on 3 June 2020 – and so has not yet become law. Given a fair wind, and the Government’s strongly held desire to formalise these arrangements, it is conceivable that these reforms could be enacted from the start of July, subject to a straight-forward passage through Parliament. The authors will follow with interest as the legislative framework for these provisions takes shape.
Locke Lord’s London team has considerable experience advising on a host of insolvency/restructuring and funding matters across all sectors in the UK and globally.
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