Technical Briefing: New legislation on insolvency published

Of interest to those who may be involved in managing a corporate insolvency

On 20 May, the Government published the Corporate Insolvency and Governance Bill, which received its first reading that day and is planned to go through the rest of its Parliamentary passage on 3 June.

The bulk of the Bill relates to Insolvency and is intended, in the words of the explanatory memorandum to “introduce greater flexibility into the insolvency regime, allowing companies breathing space to explore options for rescue whilst supplies are protected, so they can have the maximum chance of survival; [and] to temporarily suspend 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”.

Principal elements of the Bill include:

  • Moratorium. The introduction of a  moratorium allowing a company in financial distress a breathing space in which to explore its rescue and restructuring options free from creditor action, perhaps facilitating a rescue of the company.
  • Arrangements and reconstructions for companies in financial difficulty – provisions which will allow struggling companies, or their creditors or members, to propose a new restructuring plan proposal between the company and creditors and members.
  • Winding-up petitions – provisions to protect businesses from winding-up petitions by creditors in circumstances where COVID-19 has had a financial effect on the company which has caused the grounds for the proceedings.
  • Wrongful trading – a measure to prevent a court taking into account  losses incurred during the period in which businesses were suffering from the impact of the pandemic when assessing director liabilities.
  • Termination clauses in supply contracts – the prohibition of prohibit termination clauses that engage on insolvency or are based on past breaches of contract, which will mean that (subject to certain exclusions) contracted suppliers will have to continue to supply, even where there are pre-insolvency arrears (unless they can demonstrate that this will cause them financial hardship.

The Bill will also give the Secretary of State a limited power to amend both primary and secondary corporate insolvency and related legislation through regulations made by statutory instrument.

The full text of the Bill can be found at: Explanatory notes can be found at:

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