The Corporate Insolvency and Governance Bill was approved in the Northern Ireland Assembly today. Despite being a devolved matter, the Economy Minister, Diane Dodds outlined that it was Department policy to maintain parity with legislation made at Westminster. Taking similar legislation through the Assembly would take many months. As a result, the Economy Minister sought the Assembly's approval for the Westminster Bill to include the same amendments to Northern Ireland's legislation as are being introduced in Great Britain, allowing local businesses to take advantage of emergency measures at the same time as those in Great Britain.
Introduction:
The Bill has three main sets of measures to achieve its purpose. First, it will introduce greater flexibility into the insolvency regime to give companies breathing space to explore options for rescue while supplies are protected. Secondly, it will temporarily suspend parts of insolvency law to support directors trading through the emergency without the threat of personal liability and to protect companies from aggressive creditor action. Thirdly, it provides companies and other bodies with temporary easements on procedures for company filing and statutory meetings.
The Bill, as introduced in Westminster, comprises a total of eight provisions aimed at assisting business. Three, which had already been consulted on, are to be permanent. The other five measures provide for a temporary relaxation of some aspects of insolvency and company legislation.
The Bill will provide companies with the support and assistance that will help them to avoid insolvency during this period of economic uncertainty and maximise their chances of survival.
Provisions of the Bill:
The first measure, which is intended to be permanent, involves amendments to insolvency legislation. It is to provide a free-standing moratorium to companies. Secondary legislation will follow to extend that to mutual societies. That will give struggling businesses a formal breathing space to explore the feasibility of a rescue or restructuring plan. It creates a 20-day moratorium during which no legal action can be taken against the company by creditors without leave of the court. That period can be further extended with the agreement of the court. During the moratorium, the company directors will still be in charge, although they will be supervised by a monitor who will be a licensed insolvency practitioner.
The second permanent measure relates to termination clauses in supply contracts. When a company enters an insolvency or restructuring procedure, suppliers will often either stop or threaten to stop supplying the company with essential goods or services. The supply contract normally gives them the right to do that, but it can jeopardise attempts to rescue the business. Provisions in the Bill will mean that suppliers will not be able to jeopardise a rescue in that way.
The third of the measures that are intended to be permanent takes the form of amendments to company legislation and will result in the creation of a new procedure for restructuring. The new procedure will assist companies that, whilst viable, struggle with debt obligations. It will allow courts to sanction a plan that binds all creditors to a restructuring plan, if it is considered fair, equitable and in the interests of creditors. Again, that will be extended to some mutuals by secondary legislation, with modifications to protect their unique position as member-owned and controlled organisations.
The remaining provisions are temporary in nature, and all are time-bound. The first three relate to changes in insolvency legislation.
The first relates to the suspension of wrongful trading. At present, a court may order a director to be held personally liable where a company continues trading and the director knew or should have known that the company could not avoid insolvency. The Bill will temporarily remove that threat and, as a result, remove the pressure on directors to close what may be otherwise a viable business. The provision will extend until 30 June 2020 or one month after the Bill comes into force, whichever is later, although it may be extended by secondary legislation if deemed necessary.
The next measure helps struggling businesses by temporarily removing the threat of winding-up proceedings where unpaid debt is due to COVID-19. It also introduces temporary provisions to avoid statutory demands issued against companies during the emergency. The measures will give businesses the opportunity to reach realistic and fair agreements with all creditors. It will also extend until 30 June or one month after the Bill comes into force, whichever is later, and can be extended by secondary legislation, if necessary.
The final insolvency provision will give the Economy Department or the Secretary of State for Business, Energy and Industrial Strategy with the consent of the Department the power to regulate to make temporary amendments to company or insolvency legislation. That would be done to keep to a minimum the number of businesses forced into an insolvency or restructuring procedure. For example, regulations could be made to change the eligibility conditions for insolvency or restructuring procedures. They could provide for the procedures not to apply or to apply in a modified form in particular cases. Any temporary changes made under the regulations must be removed as soon as the COVID-19 emergency no longer impacts on corporate insolvencies or insolvency procedures.
The power will expire in April 2021, although it may be extended, if absolutely necessary, by further legislation.
The final two amendments deal with temporary changes to company legislation.
The first deals with annual general meetings, which are central to good corporate governance. Current social-distancing restrictions do not permit large gatherings. As a result, many companies cannot hold those meetings in accordance with their constitutions. The measure temporarily allows those companies to extend the period within which the meeting must be held or allow the meeting to be held by other means. That may be via electronic means, so that all participants do not have to be at the same physical location at the same time. Mutuals will also be able to take advantage of similar arrangements, with some minor modifications to reflect the different legislative requirements.
·The final measure relates to filing requirements at Companies House. Companies are required to make a number of different filings by fixed deadlines at Companies House each year. Missing the deadline automatically results in a financial penalty. Companies House has already done all that it can under existing law to offer extensions to those deadlines. The Bill allows for further extensions, enabling struggling businesses to focus on the things that matter most while they have reduced resources and restrictions in place.