Written by Bimal Kotecha, Solicitor, Litigation Department
As you will be aware, the Government has introduced a number of schemes and incentives in order to assist individuals and businesses during the COVID-19 pandemic. Such measures include:
- The Coronavirus Job Retention Scheme where small and large employers who have furloughed workers will continue to receive 80% of their current salary, up to £2,500. This scheme is expected to last until the end of October 2020;
- A deferral of VAT payments for firms, until the end of June;
- £330 billion worth of Government backed and guaranteed loans to support businesses;
- A business rates holiday which is worth over £9.5 billion to business across the UK;
- Mortgage, rent, credit card and loan payment holidays for individuals;
- Small business grants and grants for retail, hospitality and leisure; and
- More recently, the Corporate Insolvency and Governance Bill, which we discuss in more detail below.
Despite the above measures and the lockdown restrictions easing, it is clear that many individuals and businesses are going to suffer greatly as a result of the economic strain brought on by the pandemic. Even the Chancellor has accepted that the Government will not be able to save all businesses. Indeed, we have already witnessed some casualties such as Carluccios, Debenhams and Laura Ashley (although reports suggest that these organisations were suffering financially prior to the pandemic).
Our insolvency team has already seen an increased number of businesses and individuals who have sought advice relating to their insolvency options. In particular, we have seen an increase of instructions from commercial landlords and tenants in connection with rental arrears and the domino effect it has in their respective businesses. On 28 April, following the government’s announcement on 23 April 2020 in connection with the Corporate Insolvency and Governance Bill, we set out some guidance for commercial landlords and tenants on our website which can be found here.
The Corporate Insolvency and Governance Bill
On 20 May 2020, the government presented the Corporate Insolvency and Governance Bill which proposes to make crucial amendments to the Insolvency Act 1986 and the Companies Act 2006. Below we provide a summary of the proposed amendments:
- A new statutory moratorium process. This will be available to companies and LLPs that are unable to pay their debts. This will only be applicable where it is considered likely that a moratorium would result in the company being rescued as a going concern.
- A new restructuring plan procedure. This is procedurally similar to a scheme of arrangement, allowing solvent and insolvent companies to propose a plan to creditors. The principal difference from a scheme is that the court can confirm a plan even where a class of creditors has voted against it.
- Goods and services in context of insolvency proceedings. The Bill will invalidate termination clauses in contracts for the supply of goods or services in the context of insolvency proceedings where termination is purportedly triggered by the company facing insolvency.
- Wrongful trading. Courts will ignore the period between 1 March 2020 and the later of 30 June 2020 or one month after the Bill comes into effect (whichever is later) when assessing the amount sought from a director for wrongful trading.
- Winding-up petitions. No winding-up petitions can be presented on the basis of a statutory demand served between 1 March 2020 and 30 June 2020 or one month after the Bill comes into effect (whichever is later) unless the creditor can show that:
- COVID-19 has not had a financial effect on the company; or
- The facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company
For those individuals and businesses facing financial difficulties, it is important that they receive the appropriate advice at the earliest opportunity. Such advice includes obtaining legal advice and assistance where there are insolvency proceedings (or even the threat of insolvency proceedings) on foot. Our brochure sets out a non-exhaustive list of corporate and individual insolvency services our team has to offer. We suggest that you keep this to hand in the event that either you or your clients are in need of these services.
Bearing in mind the current circumstances, our insolvency team are providing a free 30 minute telephone consultation to any individuals or businesses who are currently facing insolvency related legal proceedings. If you think any of your clients will benefit from insolvency legal advice, please feel free to put them in touch with us.
Finally, if you have any insolvency legal queries yourselves, please feel free to email bk@grantsaw.co.uk or contact me directly on 020 8305 3523.