Corporate Insolvency and Governance Act 2020 Video

Corporate Insolvency and Governance Act 2020 Video

The Corporate Insolvency and Governance Act 2020 has introduced a new standalone moratorium procedure for companies and it became law on 25th of June .

This new legislation has been introduced to address the limitations in the current insolvency regime to quickly, and efficiently, deal with the huge amounts of debt accrued by otherwise viable businesses as a result of COVID restrictions.

Namely :
Deferment of taxes , VAT and PAYE

CIBLS & Bounce back loans

RENT (potentially half a years).

At the moment the insolvency profession wait to see how the new legislation will work in practise.  It is a complex area and the different treatment of pre moratorium and post moratorium debts is something for another day. The key headlines of the Act are:

  • It introduces a moratorium preventing creditors from seeking to take action to enforce their debts during the period of the moratorium without the courts permission.
  • The moratorium initially lasts for 20 days, it can be extended to 40 days, and with creditors permission a year, and potentially indefinitely with the courts permission.
  • The directors remain in control of the business and its trading during the period of the moratorium. This is a major difference from the current insolvency regime.
  • The Act introduces a new role for Insolvency Practitioners, that of monitor.
  • Before the moratorium can be entered into the monitor has to form the view that it is likely a moratorium would result in the rescue of the company, as opposed to the business, as a going concern.
    How the monitor is able to form that view is currently up in the air.

The monitor continues to check on the companies trading during the Moratorium and is able to terminate IT if he considers it is no longer likely that the company can be rescued.

Another aspect of the Act that has hit the headlines is the suspension of personal liability from wrongful trading. In essence as it currently stands a director can be held responsible for the increase in liabilities accrued by a company after a point in time when it is determined he ought to have known Insolvent liquidation was unavoidable. Given the obvious current uncertainty as to future trading conditions the act absolves a director from any liability for liabilities accrued during the Covid crisis, and currently puts an end date on that period of 30th September 2020

This does not absolve directors from other duties owed to the company or for fraudulent trading.
Obviously the purchase of a boat with a bounce back loan will be one such breach of duty that could be enforced at a later date should the company fail.

It is also worth noting that the legislation prevents creditor action to wind up a company during Covid, with the prevention of petitions being heard and statutory demands being enforced until 30 September.

It is likely that we will start to see widespread use of the new procedure when creditors and landlords can actually take action to enforce debts.

This is a complex new area of insolvency legislation and we will be more than happy to explain any area of it in greater detail, please feel free to contact us to discuss the Corporate Insolvency and Governance Act 2020 Video

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Corporate Insolvency and Governance Act 2020 Video

 

Corporate Insolvency and Governance Act 2020 Video