8 July 2020

Corporate Insolvency and Governance Act 2020: Considerations for lenders and borrowers

The widely anticipated Corporate Insolvency and Governance Act 2020 (“CIGA”), having been rushed through Parliament, came into force on 26 June 2020, with certain temporary provisions having retrospective effect (as outlined below). With provisions spanning both commercial and insolvency issues, Banking and Finance Partner, Rowena Marshall, summarises the key insolvency-related points of CIGA and explains their potential impact on lenders and borrowers.

Representing the biggest change to the UK's insolvency regime in 20 years, CIGA introduces permanent changes (to assist with company rescue generally) which have been in discussion for some time, as well as some temporary measures (in response to the COVID-19 pandemic) which seek to protect businesses during this period. CIGA essentially:

  • Introduces greater flexibility into the insolvency regime to give companies space to explore rescue options whilst supplies are protected.
  • Supports directors to continue trading through the emergency without threat of personal liability.
  • Reduces administrative requirements in relation to filings and general meetings.

The main provisions are as follows:


  • Suspension of wrongful trading – directors will not be held personally liable under wrongful trading provisions for the worsening of a company’s financial position between 1 March 2020 and 30 September 2020.
  • Changes to the winding up petition and statutory demand processes - statutory demands and winding up proceedings are unable to be issued if the unpaid debt is linked to COVID-19 reasons.
  • Easing of administrative requirements on companies through extended filing periods and the use of electronic meetings. For further detail, please see this article by Corporate Partner, Naomi Trinh.


  • New moratorium - no legal or enforcement action can be taken against a company by its creditors for at least 20 business days.
  • New restructuring scheme – a new procedure is available to allow companies to agree a restructure plan with their creditors.
  • Disapplication of supplier termination contract provisions for insolvency. For further detail, please see Partner, Naomi Trinh’s article here.


CIGA is of course far-ranging but there are some interesting points to note and some practical implications for finance arrangements:

  • Junior creditors may be able to devise a restructuring plan with a company which can bind dissenting senior creditors.
  • Lenders cannot enforce security over a company's assets if it is in a moratorium, other than in certain circumstances.
  • Floating charges cannot crystallise as a result of a moratorium (and restrictions on disposal of assets that would be triggered by crystallisation do not apply).
  • Payments due under the loan agreement must continue to be made whilst a company is in a moratorium.
  • Lenders may be able to bring a moratorium to an end by accelerating debt.
  • The deadline for registering charges can be extended.

Please see a more detailed analysis of the key points below, although please note that this is only a summary.


Wrongful trading

Under section 214 of the Insolvency Act 1986, directors (of companies that have gone into insolvent liquidation or administration) can be held personally liable if they allow a company to continue to trade when they know or ought to have known, that the company had no reasonable prospect of avoiding insolvency.

In those circumstances a director can then be ordered to make a contribution to the company's assets (unless they have taken every step to minimise the potential loss to the creditors). Such contribution is in the court's discretion.
CIGA introduces an emergency measure to temporarily suspend the wrongful trading provisions for company directors with retrospective effect from 1 March 2020 to 30 September 2020 (the “Relevant Period”). In effect the court can assume that a director is not responsible for any worsening of the financial position of the company during the Relevant Period.

This will allow directors to continue trading during these uncertain times, without the threat of personal liability for any losses caused during the Relevant Period if the company ultimately becomes insolvent.

However, it is important to note that the suspension only applies to wrongful trading and directors will still need to fulfil their other statutory and fiduciary duties.

Statutory demands and winding up petitions

CIGA introduces temporary measures to remove the threat of statutory demands and winding up proceedings being issued during the pandemic if the unpaid debt is linked to COVID-19 reasons.

Most commentators were expecting such restrictions to only extend to landlords in relation to their tenants of commercial property given previous communication from the Government on this point. It has therefore, come as some surprise to all that CIGA applies such measures to all creditors and all debtor companies.

This has been achieved by:

  • Voiding statutory demands made between 1 March 2020 and 30 September 2020.
  • Restricting winding up petitions presented from 27 April 2020 to 30 September 2020. A petition can only be made during this period if the creditor can satisfy that:
    • Coronavirus has not had a financial effect on the company.
    • The relevant ground would apply even if coronavirus had not had a financial effect on the company.

This section has retrospective effect meaning any petitions already presented or winding up orders already made from 27 April 2020 will be voided/undone (unless they would have been valid under CIGA).

Please see here for our property litigation team's analysis on how such measures will impact a landlord's ability to collect rent from its tenant.


Company Moratorium


There will be a new moratorium for an initial period of 20 business days to provide businesses with some formal breathing space from their creditors, giving them the opportunity to restructure and formulate a rescue plan.

During this period (which can be extended for a further 20 business days without creditor consent or up to a year with creditor consent or leave of the court) no legal or enforcement action can be taken without leave from the court.

Eligible companies

All companies (UK and overseas companies (provided the court has jurisdiction to wind it up)) are eligible to apply with the exception (bar some concessions for a period of one month from enactment to deal with COVID-19) of:

  • Financial services companies (e.g. insurance companies, banks, etc.).
  • Companies in a formal insolvency process.
  • Companies subject to a company voluntary arrangement (“CVA”), administration or otherwise, in the 12 months prior to the filing date.

A company can enter a moratorium by either 1) filing the relevant documents at court (this is only available to an eligible company that is not subject to a winding up petition and is not an overseas company) or 2) making an application to court.

The monitor

A licensed insolvency practitioner must be appointed to act as a “monitor”. Their role involves monitoring the company’s affairs for the purposes of forming a view as to whether it remains likely that the moratorium will result in the rescue of the company as a going concern.

During the moratorium, the directors will retain control of the company subject to certain restrictions set out below. The monitor may also require the directors to provide information to the monitor, which must be provided as soon as practicable.

The end of the moratorium

The moratorium automatically ends if the company enters into a compromise arrangement or relevant insolvency procedure (CVA, liquidation or administration) and can be terminated by the monitor or the court. In certain circumstances, termination must be by the monitor (e.g. if they no longer think the moratorium will result in the rescue of the company as a going concern or if they think that the company can no longer pay pre-moratorium debts (no payment holidays) and moratorium debts – see below).

Payments during the moratorium

Very broadly CIGA recognises three types of debt:

  • Pre-moratorium debts (with a payment holiday): debts that fall due before or during the moratorium (and which are not excepted as below).
  • Pre-moratorium debts (no payment holiday): pre-moratorium debts that fall under certain exemptions, being broadly:
    • Monitor's remuneration or expenses.
    • Rent (for the moratorium period).
    • Wages/salary.
    • Goods or services supplied during the moratorium.
    • Redundancy payments.
    • Debts or liabilities that arise under a contract or other instrument involving financial services (this will capture loan agreements, so interest and other payments due under existing loan agreements must still be paid).
  • Moratorium debts: new debt arising during the moratorium (or after if they are due to an obligation incurred during the moratorium).

Other than pre-moratorium debts that have a payment holiday, the company will be expected to pay its pre-moratorium debts (no payment holiday) and moratorium debts when due. Failure to do so will likely lead to termination of the moratorium as a monitor must bring a moratorium to an end in these circumstances.

Restrictions on enforcement during moratorium

CIGA restricts certain enforcement steps that cannot be taken during a moratorium without permission of the court. These include:

  • Exercising of forfeiture rights by a landlord.
  • Enforcement of security (bar exceptions relating to financial collateral).
  • Instituting, carrying out or continuing a legal process against the company (bar some employment proceedings exemptions).

Effect on floating charges

During the moratorium, floating charges cannot crystallise nor can restrictions be imposed on the disposal of floating charge assets. Any such provision in a charge will not be effective.

A floating charge holder cannot apply to the court for permission to take either action.

Restrictions on granting new security during moratorium

During the moratorium a company can only grant security if the monitor consents (which they may only do so if they think it will support the rescue of the company as a going concern).

Any security granted in breach of this is an offence by the company and any officer (unless they have reasonable excuse).

Security granted by a company during a moratorium may only be enforced if the monitor consents to the grant of security.

Restrictions on disposing of assets during a moratorium

CIGA includes restrictions on the disposing of a company’s assets during a moratorium. A company may only do so as follows:

  • Unsecured assets may only be disposed of if 1) it is in the ordinary course, 2) the monitor consents (which they may only do so if they think it will support the rescue of the company as a going concern) or 3) there has been a court order.
  • Secured assets may only be disposed of if 1) it is in accordance with the terms of the security or 2) if permission of the court has been obtained (the court may give permission if it thinks it will support the rescue of the company as a going concern).

Where a company has court permission to dispose of a secured asset (other than a floating charge asset) the company must pay to the secured creditor the net disposal proceeds plus, if required by the court, a top up (to ensure the secured creditor receives what it should have had the property been sold on the open market).

A court can override a lender's consent rights and approve a sale in circumstances where a lender may not want to permit a sale (for example in a depressed market).

Floating charge assets can continue to be disposed of in the ordinary course as the charge cannot crystallise nor can restrictions on disposals be imposed. Sales proceeds from the disposal of floating charge assets are not paid to the floating charge holder - the holder will simply have the same priority in respect of the sales proceeds as it did the underlying asset.

Lenders’ ability to end a moratorium

Given debts under financial services contracts are classed as pre-moratorium (no payment holiday) this does mean lenders who do not support the moratorium can effectively bring it to an end.

This can be done by a lender accelerating payment (assuming it can be triggered by the entry into the moratorium which is likely) or making a demand under an on-demand facility (distinct from enforcing its security which is restricted per the below). If the company is unable to repay (which is likely given it is in a moratorium) then the moratorium must be terminated by the monitor.

Given this is only applicable in respect of debt where there is no payment holiday, if there is some form of forbearance given which applies during the moratorium lenders will lose this ability. Lenders should consider drafting any such waivers so that they fall away on the occurrence of a moratorium.

Support from a company's lenders is therefore crucial to preserve the moratorium.

Impact on priority on insolvency

If, within 12 weeks of the end of the moratorium, a company enters into administration or liquidation, unpaid moratorium debts and pre-moratorium debts (no payment holiday) are given priority in the insolvency distribution waterfall.

Such debts fall to be paid out after fixed charges but ahead of IP expenses and remuneration preferential creditors, the prescribed part and floating charge holders.

Lenders who accelerate their debts during the moratorium are prevented from receiving the benefit of this preferential priority.

Restructuring plan

CIGA creates a new flexible procedure for companies to plan a restructure of their affairs with their creditors (in addition to the existing methods available, such as schemes of arrangements and CVAs).

A new feature is the “cross-class cramdown” which can bind all dissenting classes of creditors or shareholders (both secured and unsecured). This may make the new scheme an attractive proposition to some companies and creditors rather than going through the existing scheme of arrangement provisions.

Companies or creditors can propose a compromise arrangement between the company, its creditors and/or shareholders who then vote in classes (deemed to approve if 75% in value of a class of creditors vote in favour, but unlike schemes of arrangement no requirement that a majority in number vote in favour).

A court will then have to approve the plan (not required for a CVA) and can bind dissenting classes of creditors if it is satisfied the plan is just and equitable and that the creditors would be no worse off if an alternative insolvency procedure was used.

Junior creditors will find this approach attractive as they are handed more say in a company's restructuring (although, of course, this may raise eyebrows for senior lenders).

If you require further advice in this area, please contact Rowena Marshall, Partner in our Banking and Finance team for further information.


This note reflects our opinion and views as of 8 July 2020 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.

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