Contact

Some welcome respite for business and their directors on the horizon?

  1. Home
  2. Latest: COVID-19
  3. COVID-19: Insolvency update

Some welcome respite for business and their directors on the horizon?

Some welcome respite for business and their directors on the horizon?

The Government says it will introduce new insolvency procedures to protect businesses during the COVID 19 crisis.  My earlier article discussed the temporary suspension of wrongful trading laws.  

The other proposed changes are the introduction of:

  • a moratorium giving companies breathing space from creditors taking action whilst they consider their options and whether they can restructure and rescue themselves;
  • statutory protections protecting their supply chain essentials (and obliging suppliers to continue supply) during the moratorium, to allow continued trading while the company considers its options. There will be linked safeguards for creditors and suppliers, to ensure they still get paid; and
  • a new court based restructuring plan, that will allow dissenting creditors to be tied into rescue plans.

These proposals are similar to those published in 2018, and it looks like the government will fast track them into law during the current crisis.  It’s not clear when they will come into effect, and what they will look like in reality.  Parliament is in recess until late April - so it’s unlikely we’ll know until then.  The government has said it will implement them at the earliest opportunity.

The proposals will be welcomed by many businesses in the current climate, but the current details don’t include any other changes that may also help businesses trying to deal with the current situation, such as:

  • limiting the ability of creditors to issue winding up petitions, which can severely limit rescue opportunities and cause inevitable failure (e.g. causing bank accounts to be frozen);
  • amending the circumstances when a company is deemed insolvent (e.g. which may trigger banking and other covenant breaches); or
  • clarifying whether an already insolvent company will be able to use the new moratorium. They were excluded from the 2018 proposals, which only allowed companies able to pay their debts during the moratorium to use it (and only if they had funds to make relevant payments during it). Given the current situation this may limit the ability of many to use it.

There’s hope on the horizon, but it’s unclear how far the changes will go, and what effect they will have in reality, until we see the flesh on the bone.  As it stands, without the above (at least on a temporary basis) and subject to seeing the legislation there’s cause for concern that may be a case of sounding good, but not having the effect hoped.  In the meantime we’d suggest checking out our key tips here.

GET IN TOUCH

If your business needs legal support with any issues arising from COVID-19, please get in touch with Frank Bouette.

All information in this document is accurate at the time of writing. It is meant for general information only and is not legal advice.