Government Proposals to reform Insolvency Law in response to Coronavirus
21 Apr 2020
The Government has outlined its proposals for reform to the insolvency legislation in response to Coronavirus. Some of the proposals build on plans consulted on in 2018 for the reform of insolvency law more generally. In particular the following provisions of that consultation exercise have been referred to:
- The creation of a new moratorium to give companies in difficulty but which are ultimately viable a period to prepare for restructuring. During this time creditors, both secured and unsecured, would be unable to take enforcement steps.
- A new court-based restructuring tool modelled on the pre-existing English Scheme of Arrangement.
- Provision to require essential suppliers, utilites and broadband have been mentioned, to continue supply on existing terms and not terminate contracts or insist on ransom payments.
In addition, and heavily trailed, is the proposal that the wrongful trading provisions of the Insolvency Act will be suspended for three months, backdated to commence 1 March 2020. The rationale is that this will reassure directors that they will not face personal liability when taking decisions about the future viability of the business due to events beyond their personal control.
The announcement has been welcomed by the ICAEW and CBI. R3 had previously expressed concern that a blanket suspension would risk abuse and had called for my limited changes.
The draft legislation has not yet been published and with Parliament not due to return until late April it may be some weeks for the detail is known. The New Square insolvency team will continuing to keep you up to date with the proposed legislation as it is released.