New legislation making significant changes to the UK’s domestic insolvency regime
The Government yesterday tabled the much-anticipated Corporate Insolvency and Governance Bill which contains both short term measures aimed at assisting companies struggling with the immediate impact of Covid-19 and significant reforms which are intended “to ensure that the UK’s insolvency regime retains its world-leading position including re-invigorating its rescue culture”. Taken together, these represent arguably the most fundamental shake-up of the United Kingdom’s domestic insolvency regime since the Enterprise Act came into force 17 years ago.
The proposed reforms, which may be amended as the Bill passes through Parliament, include both temporary amendments to insolvency legislation relating to “Wrongful Trading” and winding-up petitions and three measures which may have a significant long-term impact on restructuring and insolvency practice in the United Kingdom. These are:
- The creation of a new, stand-alone, cram-down procedure which would be very similar to the existing Scheme of Arrangement, but which would, unlike a Scheme, allow the cram down of a dissenting class of creditors or shareholders. The new “cross-class” cram down procedure is intended to be more flexible than the equivalent provision contained in Chapter 11 of the US Bankruptcy Code;
- The introduction of a new moratorium (initially for 20 business days but extendable) which is intended to give viable companies an opportunity to develop a business rescue plan, free from immediate creditor pressure, and which may be used primarily by SMEs; and
- A prohibition on the enforcement of contractual termination rights which arise solely because a party has entered into an insolvency procedure which may have significant consequences for some suppliers of goods and services, although its impact will be lessened by the long list of exceptions to this prohibition.
Please see our client alert for a detailed analysis of the proposed reforms. If you would like to discuss any aspect of this alert, please get in touch or reach out to your usual Linklaters contact.