Structural Changes to UK Corporate Law in 2020?

What are the structural changes to UK Corporate law in 2020?

The Corporate Insolvency and Governance Act became live on June 26th, 2020. Within the act, it has embedded changes, along with those designed to temporarily support a ‘rescue culture‘ for the UK economy and business.

The temporary support remains designed to relieve the intense stress induced by the coronavirus COVID19 pandemic in the UK economy.

Which temporary measures continue?

The following measures continue:

  • You may no longer abandon commercial property leases based on rent not being paid. Applies to rent due March 26th 2020 and March 30th 2021
  • Creditors remain blocked from issuing statutory demands, and winding-up petitions against creditors, save in special situations where COVID-19 had no influence based on the company’s incapacity to pay—now extended to December 31st 2020.
  • Smaller suppliers continue to be excluded from the ban on implementation of ipso facto clauses until March 30th 2021 therefore, decreasing the chance of exposure.
  • Relaxation, until March 31st 2021, of the entry rules to obtaining a moratorium: 
    • permitting a company to obtain a moratorium when it has received insolvency support in the past 12 months;
    • Allowing companies fighting a winding-up petition to enter a moratorium by filing papers at court.
  • Operating required statutory meetings virtually extends to December 30th 2020.

Further, commencing December 1st 2020, HMRC crown preference returns. Therefore, ensuring every distribution of the assets of the company experiencing insolvency provides HMRC rank, therefore first in preference to a “floating charge-holder” concerning individual taxes. Consequently, this means the crown preference will dilute lenders’ positions, prompting action before December 1st.

Please note: The pause of wrongful trading liability does not apply to directors of companies excluded, including insurance companies, public-private partnership project companies, banks, and companies overseas.

Structural Changes to UK Corporate Law in 2020. So, the clock ticks!

Perhaps examining the way forward could decrease exposure:

  • Even in situations where a creditor believes they have areas to request for the winding up of a company on debt not associated with COVID 19, consider the arduous effort required to ensure a hearing. 
    • Reducing payment dates; 
    • restricting stock availability; 
    • contemplating guarantees across companies, either connected or in a group structure, remain ways to secure fiscal vulnerability.
  •  ipso facto changes may no longer affect the smaller suppliers who will rely on clauses to terminate contracts, allowing more control over their exposure to struggling companies.
  • Suppliers outside the ipso facto clause then prevent termination for a breach during insolvency proceedings. Therefore, a supplier seeking to terminate a contract might seek to demonstrate that the relevant event, or entitlement, started post-insolvency. Managing a review of your current termination clauses to ensure they afford security.
  • Crown preference may require lenders with a floating charge to check the borrower’s liability with HMRC.
  • Lenders may commence recovery to protect their exposure.