Corporate Insolvency and Governance Act 2020—the rise of the moratorium and restructuring plan and the fall of the Scheme?

Corporate Insolvency and Governance Act 2020—the rise of the moratorium and restructuring plan and the fall of the Scheme?

This News Analysis considers in detail the new moratorium and restructuring plan procedures introduced by the Corporate Insolvency and Governance Act 2020 (CIGA 2020). It also considers whether the rise of the restructuring plan will ultimately be the death knell of the traditional scheme of arrangement under Part 26 of the Companies Act 2006. It is based on a webinar given for P.R.I.M.E. Finance on 27 July 2020. Written by Jennifer Marshall.

Introduction

CIGA 2020 entered into force on 26 June 2020. CIGA 2020 represents the most significant reforms to the insolvency framework in the UK since, at least, the widespread introduction of administration under the Enterprise Act in 2003. CIGA 2020 was brought into law very quickly to bring about changes seen as necessary to support struggling businesses as they deal with the economic fallout from coronavirus (COVID-19). It should be noted, however, that many of the changes are permanent rather than temporary in nature and they will transform the way creditors and others interact with businesses in financial difficulty. The legislation is long and complex. This analysis attempts to summarise some of the key questions that practitioners may have in relation to the new legislation.

The legislation focuses on some permanent reforms in three key areas: a moratorium, a ban on the operation of termination provisions (or so called ipso facto clauses—see News Analysis: Corporate Insolvency and Governance Act 2020: freezes on contract terminations and the introduction of a new pre-insolvency rescue and reorganisation procedure (the restructuring plan)). There are also some temporary measures such as the relaxation of the wrongful trading regime and the suspension of statutory demands and winding-up petitions where financial difficulties are attributable to the coronavirus pandemic. This article focuses on the permanent reforms.

Moratorium

CIGA 2020 introduces a new Part A1 to the Insolvency Act 1986 (IA 1986), which will replace the ‘small company moratorium’ for putting together proposals for a company voluntary arrangement which, in practice, was rarely used by companies. The new provisions will provide businesses with a statutory

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.