The Corporate Insolvency and Governance Bill was approved in the Northern Ireland Assembly on 1st June 2020. The Bill is aimed at providing additional support to businesses through this period of financial instability caused by the COVID19 pandemic. It extends Northern Ireland’s legislative provisions to match the emergency measures available in Great Britain.
Measures included within the Bill are as follows:
The Bill gives struggling businesses a formal breathing space to pursue a rescue plan. It creates a moratorium during which no legal action can be taken against a company without leave of the court.
If an insolvency practitioner (IP) (who will be called ‘the Monitor’) believes that a company can be saved, notice can be filed at court commencing a moratorium for an initial period of 20 business days. This will protect the company from creditor action while additional finance is raised. A further 20 business day extension to the initial period can be applied for if the IP Monitor still believes it is likely to bring about the rescue of the company as a going concern. This period can be extended for a further period with creditor consent or at the discretion of the Court.
The Restructuring Plan (“RP”)
The Bill introduces a new procedure called a “Restructuring Plan” to support viable companies struggling with debt obligations. The new provisions allow the court to sanction a plan that binds creditors to a restructuring plan if it is fair and equitable and in the interests of creditors. Creditors vote on the plan, but the court can impose it on dissenting creditors (‘cram down’) provided that the necessary conditions are met and provided those creditors are no worse off than they would otherwise be in the next most likely outcome.
Prohibition on termination clauses in contracts
When a company enters an insolvency or restructuring procedure, suppliers of goods and services will often either stop, or threaten to stop, supplying the company. The supply contract often gives them the right to do this, but it can jeopardise attempts to rescue the business. The Bill will mean suppliers will not be able to use contractual ‘termination’ clauses to jeopardise a rescue in this way.
Wrongful Trading provisions suspended
The Bill will temporarily remove the threat of personal liability arising from wrongful trading for directors who continue to trade a company through the crisis with the uncertainty that the company may not be able to avoid insolvency in the future. Liquidators and administrators will not be able to make a claim against an insolvent company’s directors for any losses to the company or its creditors resulting from continued trading while the wrongful trading rules are suspended. This will remove the pressure on directors to close otherwise viable businesses to avoid potential liability. All the other checks and balances on directors remain in place.
Statutory filing extensions and AGMs & Meetings
The Bill provides companies and other types of business registered at Companies House with more time to file accounts, confirmation statements and details of relevant events, such as a change in director.
It also makes it easier for companies and other bodies like building societies and charities to comply with legal requirements on holding Annual General Meetings (AGMs) and other meetings while keeping their shareholders and members safe and adhering to the Government’s social distancing legislation and guidelines.
Statutory demands and Winding up petitions suspended
The Bill helps struggling businesses by temporarily removing the threat of winding-up proceedings where unpaid debt is due to Covid-19. It introduces temporary provisions to void statutory demands issued against companies during the emergency. This gives businesses the opportunity to reach realistic and fair agreements with all creditors.
The above is an overview of the measures which have just recently been introduced to provide viable businesses with the best possible chance of surviving the pandemic.