Breathing space for businesses to continue

New legislation has come into effect which extends the applicability of certain temporary provisions under the Corporate Insolvency and Governance Act 2020 (“CIGA”). But what does this mean for businesses?

In several ways, businesses can continue to make use of the breathing space provisions brought in by CIGA to support their day-to-day work in keeping their companies afloat during the pandemic.

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 came into effect on 29 September, and while some of the provisions set down by CIGA are to continue, others are not.

What’s in?

Provisions that have been extended include:

• Suppliers of goods and services are still prohibited from terminating a supply contract if the reason why they’re doing so is due one of the receiving parties undergoing an insolvency process. Small suppliers are exempt from this provision and will remain so until 30 March 2021 at the earliest.
• The relaxed rules on in-person general meetings will continue until 30 December 2020.
• The new moratorium procedure is to continue until 30 March 2021 at the earliest, subject to several modifications. This means companies which were previously ineligible for moratorium are now eligible, and application for a moratorium need not include specific wording relating to the company’s deteriorating financial performance being a direct result of the coronavirus. These changes to procedure, among others, are in effect as of 1 October 2020.
• You cannot present a winding-up petition if a statutory demand has been unsatisfied and was served after 1 March 2020. This restriction has been extended to 31 December 2020.
• A creditor also cannot present a winding-up petition on the basis that a company is unable to pay its debts, unless the creditor has reasonable grounds to believe that the company’s inability to pay its debts is a position which would be independent of the pandemic. This restriction has been extended until 31 December 2020.

What’s out?

Suspension of wrongful trading rules have not been extended and are now reinstated as of 30 September 2020. No explanation has been offered regarding why these rules have been reinstated, but it is believed that the suspension of the rules was not as helpful as initially expected for directors of struggling businesses.

The decision to reinstate the rules has been criticised by many businesses, with some commenting that rules should remain suspended to allow for business recovery during a time of unprecedented international crisis, providing directors with a safety net to continue trading without personal liability being a concern. However, while supporting business recovery is a noble aim, this support should not prejudice a company’s creditors as a result.

All other offences contained in the Companies Act 2006 which could result in a director being found personally liable remain in effect.

What’s next?

It is possible that the government may introduce new legislation shortly to extend provisions further, with potential for new suspensions and restrictions being brought into force as a response to the economic recovery of UK businesses. The coronavirus pandemic remains a challenging and difficult time for all, with responsive legislation being enacted swiftly and regularly.