Legislative Update: Enactment of the UK Corporate Insolvency and Governance Act
On June 25, 2020, the new UK Corporate Insolvency and Governance Act ("Act") became law after it was given Royal Assent by Queen Elizabeth II. The changes introduced by the Act will have a significant impact on the future direction of the UK restructuring market.
Conceptually, the purpose of the Act is to promote a stronger rescue culture in the United Kingdom, providing companies in financial distress with a better chance of being restructured on a going-concern basis (in a similar way to restructurings under chapter 11 of the U.S. Bankruptcy Code).
The changes introduced by the Act were initially proposed by the UK Government in 2016 and went through a consultation period in 2018. A new restructuring regime for the United Kingdom had therefore been anticipated. However, in response to COVID-19, the timing of the implementation of the Act was accelerated, and certain provisions have been revised (compared to the Government's proposals announced in 2018) in order to ensure that the Act is more responsive to current economic conditions.
Key features of the Act include: (i) a new standalone statutory moratorium on creditor collection activities; (ii) a new restructuring plan process; and (iii) certain restrictions on the use of insolvency termination (ipso facto) clauses in contracts for the supply of goods and services. In addition, directly in response to COVID-19, the Act includes certain temporary measures relating to: (a) the suspension of director liability for wrongful trading; and (b) restrictions on the issuance of statutory demands and the presentation of winding-up petitions where the underlying financial distress is directly related to COVID-19.
A more detailed discussion of the Act and its key implications for stakeholders is available here.
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