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Insolvency and restructuring measures to be amended to respond to coronavirus situation

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By David Menzies, Director of Practice

30 March 2020

Main points:

  • Legislation to be introduced to bring forward new restructuring tools
  • This will also include enabling companies to continue buying much-needed supplies
  • Wrongful trading provisions to be suspended from 1 March 2020.

New restructuring measures are to be introduced to in response to coronavirus pandemic.

The Business Secretary has announced changes to legislation will be brought forward to enable UK companies undergoing a rescue or restructure process to continue trading, giving them breathing space that could help them avoid insolvency.

This will also include enabling companies to continue buying much-needed supplies, such as energy, raw materials or broadband, while attempting a rescue, and temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability.

The government previously consulted on changes to the corporate insolvency regime and announced plans to introduce new insolvency restructuring procedures in August 2018. The new legislation will implement these plans, including a short moratorium or ‘breathing space’ that will give companies in difficulty time to explore options for rescue.

  • Under the plans, the UK’s Insolvency Framework will add new restructuring tools including:
  • a moratorium for companies giving them breathing space for from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;
  • protection of their supplies to enable them to continue trading during the moratorium; and;
    a new restructuring plan, binding creditors to that plan
  • The proposals will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.

The government will also temporarily suspend 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.

Existing laws for fraudulent trading, provisions relating to delinquent directors, directors duties under the Companies Act 2006 and the threat of director disqualification will continue to act as an effective deterrent against director misconduct.

COVID-19 support for businesses

By Alice Telfer, Head of Business Policy and Public Sector

2 April 2020

2022-11-mitigo 2022-11-mitigo
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