Background to the Corporate Insolvency and Governance Act 2020 (CIGA 2020) Spurred on by the coronavirus (COVID-19) pandemic and a desire to mitigate the effect on businesses of the government-imposed lockdown, the Corporate Insolvency and Governance Bill received Royal Assent on 25 June 2020 resulting in the CIGA 2020. This followed the government’s previous consultation on proposed changes to the UK’s insolvency regime in 2016, its response to which was published on 26 August 2018 (see News Analysis: Exploring the government’s response to the insolvency and corporate governance consultation). Among the reforms, the CIGA 2020 introduced new provisions into the Insolvency Act 1986 (IA 1986) to ensure the continuity of essential supplies and restrict contractual termination provisions on insolvency (so-called ‘ipso facto’ clauses). For an overview of the CIGA 2020, see News Analysis: Corporate Insolvency and Governance Act 2020. What are ipso facto clauses? When a company is subject to an insolvency procedure, creditors often seek to improve their position by threatening to terminate their supply of goods or

ARCHIVED: This archived Practice Note is not maintained and is for background information only. What is the background to the changes? The coronavirus (COVID-19) pandemic and resulting lockdowns and social distancing measures introduced by the UK government have had a profound effect on businesses and the economy. On 20 March 2020, the government announced that businesses including restaurants, pubs and leisure centres must close, and on 23 March 2020 a full lockdown was introduced, sending huge parts of the private sector into hibernation. The forced closure of businesses has threatened the financial health of many previously successful companies, while for those already struggling it has proved to be the tipping point. In order to mitigate the economic consequences of coronavirus and keep the economy on life support, the government introduced a range of measures, from financial support initiatives to legislative reform. For further details of the financial support available, see Practice Note: Coronavirus (COVID-19)—summary of government financial support to businesses. In order to protect

What is the background to the temporary changes to the wrongful trading regime? The coronavirus (COVID-19) pandemic and the resulting lockdowns and social distancing measures introduced by the UK Government continue to have a crippling effect on many businesses and the economy overall. When the original national lockdown was announced in March 2020, the Government introduced a package of legislative and financial support measures designed to assist businesses and keep large parts of the private sector on life support. As part of the legislative reforms, the Corporate Insolvency and Governance Act 2020 (CIGA 2020) received Royal Assent on 25 June 2020. For further information on coronavirus for restructuring and insolvency professionals, see: Coronavirus (COVID-19)—Restructuring & Insolvency—overview. Directors of companies in financial difficulties are presented with many practical and legal concerns, including the risk of personal liability. One of the key concerns for directors is usually the threat of liability for wrongful trading under section 246ZB of the Insolvency Act 1986 (IA 1986) (in the context of insolvent

Key provisions of the Act On 25 June 2020, after less than 40 days in Parliament, the Corporate Insolvency and Governance Act 2020 (CIGA 2020) received Royal Assent. This Act, which contains reforms to UK insolvency law, mostly came into force on 26 June 2020. CIGA 2020 is designed to help companies and other entities stay afloat where they find themselves in financial difficulties as a result of the coronavirus crisis. Among other things, CIGA 2020 includes the following provisions: • introduction of a company moratorium—directors of insolvent companies or companies that are likely to become insolvent can obtain a 20 business day moratorium period to allow viable businesses time to restructure or seek new investment free from creditor action (ie to give the company some breathing space). The moratorium period may also be extended. The moratorium is overseen by an insolvency practitioner acting as a ‘monitor’ although the directors remain in charge of running the business on a day-to-day basis (known as a ‘debtor-in-possession’ process with the company being the ‘debtor’). The

ARCHIVED: This Practice Note has been archived and is not maintained. The coronavirus (COVID-19) pandemic and resulting lockdowns and social distancing measures introduced by the UK government have had a profound effect on businesses and the economy. On 20 March 2020, the government announced that businesses including restaurants, pubs and leisure centres must close, and on 23 March 2020 a full lockdown was introduced, sending huge parts of the private sector into hibernation. The forced closure of businesses has threatened the financial health of many previously successful companies, while for those already struggling it has proved to be the tipping point. In order to mitigate the economic consequences of coronavirus and keep the economy on life support, the government introduced a range of measures, from financial support initiatives to legislative reform. For further details of the financial support available, see Practice Note: Coronavirus (COVID-19)—summary of government financial support to businesses. In order to protect commercial tenants, the government announced its intention

Restructuring & Insolvency analysis: On 20 May 2020, the Government released details of the Corporate Insolvency and Governance Bill. We look in particular at the provisions relating to the new restructuring plan, including which companies are eligible, cross-cram down and other voting provisions as well as the court’s involvement.

What is a Corporate PPA? A corporate power purchase agreement (PPA) is an agreement under which a corporate entity purchases electricity (usually renewable electricity) from an electricity generator for use in its own business. For the purposes of this Practice Note, we are assuming that the corporate buyer is not located at the same site as the generator. For arrangements in respect of co-located corporate buyers supplied via private wire, see Precedents: Power purchase agreement (PPA)—exempt power supply and Connection agreement for private wires. There are two main structures employed in corporate PPAs as we outline below. Both are more complicated than the ‘classic’ PPA, which involves just one agreement under which a generator agrees to sell all of the electricity generated by its generating station and associated benefits to a licensed electricity supplier (see Practice Note: Power purchase agreements (PPAs)—key terms and issues). The additional complexity of corporate PPAs arises as a result of the need to involve a licensed

STOP PRESS: On 16 July 2018 the Financial Reporting Council published revised versions of its UK Corporate Governance Code (UKCG Code) and Guidance on Board Effectiveness (FRC Guidance), both of which will apply to premium listed companies with accounting periods beginning on or after 1 January 2019.  The guidance below reflects the requirements of the 2016 versions of the UKCG Code and FRC Guidance and will be updated shortly. For further details, see: New ‘shorter, sharper’ corporate governance code published, LNB News 16/07/2018 64, News Analysis: FRC publishes revised UK Corporate Governance Code and Practice Note: 2017-2019 Corporate governance reforms. This year’s annual round-up reviews some of the most significant developments of 2017 and previews what is on the horizon for 2018. This includes the government’s recommended corporate governance reforms, the introduction of private fund limited partnerships, new prospectus regulation and proposed amendments to the Takeover Code. Also included are updates on LexisNexis® Corporate’s content, including news of exciting developments from the past year and what is coming up in the next

bonds'>Corporate bonds are issued by companies to raise capital. They are an alternative to issuing new shares on the stock market (equity finance) and are a form of debt finance. A bond is basically an IOU—a promise to pay back your original investment (the ‘principal’) at a maturity date, plus interest payments (the ‘yield’ or ‘coupon’) at regular intervals between now and then. The bond is a tradable instrument in its own right, which means that you can buy and sell it during its life, and its value will tend to rise and fall as interest rates change.

A form of debt issued by a company (also known as ‘credit’) seen as higher risk than government bonds, because of the greater risk that a company will default on repayment. A high quality corporate bond is a bond issued by a company which has a high credit rating.

Co-operation by a corporate entity is key to obtaining a deferred prosecution agreement (DPA) as both the judgments approving DPAs entered into to date and speeches given by the Serious Fraud Office (SFO) in respect of DPAs demonstrate. For more information, see Practice Note: DPAs in practice. The SFO has published it’s Corporate Guidance which is expressly intended to assist organisations in understanding what will be expected of them in order for their work to count as co-operation for the purposes of a DPA. The guidance specifically states that where a corporate self-reports suspected wrongdoing and co-operates fully then, unless exceptional circumstances apply, it can be expected to be invited to negotiate a DPA instead of facing prosecution. In particular, the guidance: • clarifies the measures that the SFO expects from a company when it seeks to self-report suspected wrongdoing and be considered eligible for co-operation credit • contains a non-exhaustive list of conduct indicating co-operative practices • sets out conduct which the SFO considers to be inconsistent with genuine co-operation It

Corporate Crime analysis: The government has established its Brexit negotiating strategy in respect of combating crime and terrorism. Monty Raphael QC, special counsel at Peters & Peters (with research assistance provided by Mariam Al-Mashehadani at the firm), considers the implications of Objective 11.