Company and Insolvency Rules: Temporary Measures
28th May 2020
The Corporate Insolvency and Governance Bill, which was presented to Westminster on 20 May 2020 will be fast tracked and should be introduced at the beginning of June 2020.
In addition to three permanent changes proposed to the insolvency landscape there are a variety of measures to give temporary relief during the COVID crisis.
We have produced a separate note on the three new Permanent Measures (here):-
1. A moratorium period when creditors cannot take enforcement action
2. A new scheme of arrangement for compromise with creditors
3. Suppliers prohibited from terminating supplies during the moratorium period
Temporary Measures during the relevant Suspension Period
Company Secretarial administration
Accounts normally required to be filed at Companies House within 9 months of the accounts year end. For example, accounts for a 31st December year end will require to be filed by 30th September.
Since 26th March 2020 there has been scope to apply for an automatic and immediate 3 month extension to that filing deadline.
The Bill enables the Secretary of State to make further regulations to extend deadlines for 3 types of filing:
• confirmation statements (including event-driven filings that are required to be submitted in advance of the confirmation statement)
• registrations of charges
AGMs (Suspension Period currently 27th March to 30th September 2020):-
• remote attendance at shareholder meetings will be permitted or the time period for the AGM can be extended.
Enforcement (Suspension Period currently 27th April to 30th June 2020):-
• The option of using a “statutory demand” (a 21 day demand process) as the basis for a liquidation petition will not be available.
• In any liquidation petition, the courts will require to be persuaded that the reason the company is unable to pay its debts is not down to COVID-19. In other words, if a company is unable to pay debtors purely due to COVID-19 then creditors will not be able to push them in to liquidation.
Wrongful Trading (Suspension Period currently 1st March to 30th June 2020):-
Wrongful trading is when a company continues to trade when its directors knew, or at least ought to have known, that there was no reasonable prospect of it avoiding insolvency. If a company continues to trade beyond that point, the directors of the company could, in normal circumstances, be held personally liable for debts incurred during that period.
The Bill provides that losses incurred during the Suspension Period will not be considered in an action for wrongful trading.
Overview on Wrongful Trading
A lot has been written about the Wrongful Trading relaxation being a Rogues Charter but that takes the helpful aspect totally out of context:-
1. During COVID-19 lockdown, many companies have mothballed their operations – effectively closing their doors to customers, furloughing a large number of their workforce and temporarily suspending their operations. So the risks of falling foul of wrongful trading law in respect of this particular period were probably small.
2. The temporary suspension of the wrongful trading regime gives breathing space. The big test is the ability to trade once lockdown and the Suspension Period ends.
3. Directors still owe their fiduciary duties as well as those set out in the Companies Act 2006. Whilst ordinarily these would be owed to the company’s shareholders, this requirement switches when a company is insolvent or at risk of being insolvent so that the directors must take decisions for the benefit of the company’s creditors as a whole.
So, still an onerous role and certainly not a Rogues Charter. Overall, a Director will still be captain of the ship entrusted by the stakeholders to navigate its safe passage, bring it home having successfully avoided the icebergs with a cargo that, ideally, generates a profit.
The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at May 2020. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 302 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.