Businesses struggling due to the current Coronavirus pandemic are being offered a substantial lifeline with one of the largest shake-ups of insolvency laws in nearly 20 years.
According to the Midlands branch of the insolvency and restructuring trade body R3, the Corporate Insolvency and Governance Act 2020, which passed into law on Thursday (25/6/20), is a huge step forward in navigating the enormous economic damage caused by COVID-19.
In addition to temporary easements on reporting requirements for private and public limited companies, the Act includes new corporate restructuring tools aimed at maximising business rescue, as well as the temporary suspension of parts of insolvency law.
R3 Midlands Chair Eddie Williams, a partner at Grant Thornton in the East Midlands, said: “The measures contained in the Act come not a moment too soon and will add to the options available to insolvency and restructuring professionals focused on rescuing businesses and supporting long-term corporate survival.”
The new Act introduces a moratorium which will give struggling companies a 20-business day opportunity to consider a rescue plan, extendable to 40 business days, with further extensions at the agreement of creditors or the court.
Further proposed measures include temporary changes to wrongful trading provisions, which will enable businesses to continue to operate without the threat of personal liability to directors. Written warnings from creditors and winding up petitions against companies struggling financially due to the Coronavirus could also be suspended.
Eddie Williams continued: “The proposed legislation will give both solvent and insolvent businesses crucial breathing space and increased legislative flexibility to review options without being pushed prematurely into an insolvency procedure. This new approach could make a significant contribution to repairing the economic devastation caused by the current pandemic.”