Corporate Insolvency and Governance Act 2020 (“the Act”)
Following on from my recent article relating to the Corporate Insolvency and Governance Bill 2020, in which it was indicated that the Bill was being fast-tracked through Parliament, I confirm that on 26th June 2020 the Bill was enacted. Hopefully, both the permanent and the short-term measures introduced will provide a bridge for vulnerable companies to survive until conditions brought on by the Coronavirus crisis improve in the interests of themselves, their employees and their creditors.
With the Act now in place, this article focuses on one of the most talked about aspects of the new legislation, namely the Moratorium, which aims to provide struggling businesses with formal breathing space to pursue a rescue plan.
When the detail of the proposed Moratorium was first published a lot of the comments from within the insolvency industry were raising concerns about the obligations placed on the proposed Monitor (an Insolvency Practitioner) who had to assess whether it is likely that the moratorium will result in the rescue of the company as a going concern and the potential implications for the Monitor if the company were to fail. These concerns have led to some Insolvency Practitioners stating that they will not consider taking an appointment as Monitor. Some of these concerns were rooted in the historical mind-set that the bulk of companies seeking advice at a time of financial stress are too far down the road to failure to make the rescue of the company viable. Insolvency Practitioners have long since preached that a lot of potentially viable businesses have failed simply because of the reluctance of directors to seek professional advice and guidance at an early enough stage. This reluctance of directors to seek advice early enough, and of those professionals advising them, will have to change in order that the potential benefits of the new Moratorium can be fully realised. This will ensure that more struggling, but fundamentally sound businesses, can be saved.
Therefore, the message is simple; if you are a director of a company or have a client who is a director of a company, that is likely to become unable to pay its debts, and an Insolvency Practitioner is likely to take the view that it is likely (or more likely than not) that a moratorium would result in the rescue of the company as a going concern, then protection by the Moratorium may well be appropriate.
Please do not hesitate to contact one of our team to discuss the first steps to obtaining an initial moratorium period of 20 business days, providing the breathing space from creditor pressure and action that the company needs to focus on its viable business activities.
It should be noted that during the period to 30th September 2020 there are some changes to the eligibility criteria:
- The requirement that the Monitor is of the view that it is likely a moratorium would result in the rescue of the company as a going concern is relaxed slightly so that the Monitor must only be of the view that a rescue would be possible were it not for any worsening of the financial position of the company for reasons relating to coronavirus.
- A company will be eligible for a moratorium even if it was subject to a prior moratorium or administration or CVA in the previous 12 months.
- There is an additional exclusion from eligibility. Certain regulated companies which may hold money for clients will not be eligible for moratorium during this period.
We look forward to assisting both you and your clients at some point soon.
If you would like further assistance on theses changes, please contact the author of this article.