Corporate Insolvency and Governance Bill: Briefing for Lords Stages

On 9 June 2020, the second reading of the Corporate Insolvency and Governance Bill 2019-21 is scheduled to take place in the House of Lords. Although several of the provisions in the bill are new and have been designed according to the short-term conditions created by the pandemic, others are long-planned reforms which the Government has previously consulted upon, including changes to the corporate insolvency regime and restructuring measures. As such, the bill contains a mix of permanent and temporary/time-limited measures, the latter designed to be subsequently extended or curtailed depending on how long they are required.

The bill’s permanent measures include the introduction of a moratorium for companies in financial distress, allowing them opportunity to explore its rescue and restructuring options free from creditor action. The bill would also introduce provisions to allow struggling companies, or their creditors or members, to propose a new restructuring plan. Further, the bill would change the rules on when a supplier can withhold payment to struggling firms to avoid imperilling a rescue, though there would be safeguards to ensure that continued supplies are paid for, and suppliers can be relieved of the requirement to supply if it causes hardship to their business.

The bill’s temporary measures to support businesses through the pandemic include the suspension of parts of insolvency law to support directors to continue trading through the emergency without the threat of personal liability and to protect companies from aggressive creditor action. The bill would also allow for temporary flexibility regarding other administrative burdens such as the holding of Annual General Meetings (AGMs) and filing requirements.

The bill has been welcomed by business bodies including the Institute of Directors and sector-specific organisations such as Hospitality UK. During the bill’s fast-tracked consideration in the House of Commons the measures were also welcomed by opposition parties. However, concerns were also raised about the scope of some of the provisions, particularly whether employee rights were sufficiently safeguarded, and measures which were absent from the bill, including corporate responsibility reforms.