Corporate Insolvency & Governance Bill 2020
Published 29 June 2020. By Conor McCann
The long-awaited Corporate Governance and Insolvency Bill 2020 was given Royal Assent on 26th June 2020. The Bill has been designed to make provision for “companies and other entities in financial difficulty and to make temporary changes to the law relating to the governance and regulation of companies and other entities” (Parliament UK).
One of the most interesting provisions within the Bill is the introduction of the Moratorium process. This process looks to give companies in the UK who are coming under financial pressure some much needed breathing space. That time may be used by the directors to restructure or refinance and affords them much more control than if, for example, an Administrator had been appointed.
There are a number of important criteria which any prospective company must meet before being eligible for a Moratorium. The legislative framework is quite clear that this measure was not directly intended to aid a company whose financial struggles predated the introduction of lockdown. Indeed, a company who are subject to an outstanding winding up petition are not automatically eligible to seek a Moratorium and instead must firstly obtain a court order. There are also a number of sector-based restrictions which prevent a company from being eligible, to include banks, insurance companies and investment firms.
The scope for eligible companies is quite wide and the process for application is relatively straight forward. A company must submit the ‘required documents’ set out in article 13BC of the Bill to the High Court. Those documents are as follows:
a. A notice that the directors wishes to obtain a Moratorium;
b. A statement from a qualified person (known as a “monitor”, an Insolvency Practitioner) who acknowledges they: i. Are a qualified person; and ii. Consent to act as the monitor in relation to the proposed Moratorium.
c. A statement from the proposed monitor that the company is an eligible company;
d. A statement from the directors that, in their view, the company is or is likely to become, unable to pay its debts; and
e. A statement from the proposed monitor that, in their view, it is likely that a Moratorium for the company would result in the rescue of the company as a going concern.
Provided the prerequisites have been complied with, a Moratorium comes into force at the time the required documents are filed with the High Court. It will continue for a period of 20 business days beginning with the business day after the day on which it came into force and can be extended by a further application to the High Court. The length of the extension granted will depend on whether the company has creditor consent or has been able to obtain an order from the court.
What will the Moratorium do?
The effects of the measures are wide ranging and will of course be case specific. Below is an overview of some of the general restrictions that a Moratorium will place on enforcement and legal proceedings:
Creditors will be unable to enforce security over any company property without permission from the court;
No winding up petition may be presented, unless made by the company’s directors;
No application to appoint an administrator may be made, unless made by the company’s directors;
A landlord will be unable to exercise a right of forfeiture without permission from the court;
No legal process may be commenced against the company or its property unless it concerns employment related matters or permission from the court has been granted.
A Moratorium will also place certain obligations on companies, such as the requirements to display a notice on any websites or any places of work stating that the Moratorium is in force and the name of the appointed monitor.
If you would like further information on the above such as whether your company may be eligible to seek a Moratorium, please do not hesitate to get in touch with MKB Law.
This article is for general guidance only and should not be regarded as a substitute for professional legal advice.