Breathing space – Measures extended under insolvency legislation
14 October 2020
The Corporate Insolvency and Governance Act 2020 came into force on 26 June 2020, introducing temporary measures to relieve the burden on businesses during the Covid-19 pandemic. We previously issued an article summarising the measures introduced, focusing on the provisions which invalidated contractual clauses that allowed for the termination of a contract where the company had entered into a formal insolvency process. This article can be viewed here.
The measures were due to expire on 30 September 2020 but it has now been confirmed that a number of the measures will be extended.
The issuing of Statutory demands and winding-up petitions for Covid-19 related debt will continue to be restricted until 31 December 2020.
Termination clauses in supplier contracts will continue to be invalidated where the company has entered into an insolvency process. This prevents suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, a supplier that is a “small entity” may still be entitled to terminate a contract due to a company’s insolvency where the insolvency process occurs between the date that the Act came into force and 30 March 2021.
The modifications to the new moratorium procedure which relax the entry requirements to it will also be extended until 30 March 2021. Companies are now able to enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months. It will also be easier for companies that have been subject to a winding up petition to access the moratorium.
Companies and other qualifying bodies with obligations to hold AGMs will continue to have the flexibility to hold these meetings virtually until 30 December 2020. This means that shareholders can continue to examine company papers and vote on important issues remotely.
Businesses will be protected from eviction from commercial properties until 31 December 2020. This extension will protect businesses that are struggling to pay their rent due to the impact of COVID-19 from being evicted. However, the government’s advice is that, where a business can afford to pay its rent, it should do so, as this support is aimed at those struggling the most during the pandemic.
The extension of these measures is intended to support struggling businesses during this difficult and unprecedented time and while the Government’s plans are to wind down the package of financial support that is available.
The Act allows these temporary periods to be extended further, for a maximum period of three months at a time and, in any event, no later than 5 April 2021. We will therefore have to wait to see whether these measures will be extended into 2021.
Please contact a member of our dispute resolution team if you would like any advice on 01254 828300 or disputeresolution@backhouses.co.uk.
