The Corporate Insolvency and Governance Act 2020 – what does it mean for businesses?
The long awaited Corporate Insolvency and Governance Act 2020 (“CIGA”) is now in force, having received Royal Assent on 25 June 2020. It introduces certain measures (some of a temporary and some of a permanent nature) to assist businesses in navigating the current landscape. In this note, Naomi Trinh considers the commercial impact of some of its provisions.
CIGA covers a number of issues across the corporate and insolvency spectrum which will apply to many businesses and business structures. Further details on the insolvency aspects can be found in Banking and Finance Partner, Rowena Marshall's article here. However, from a commercial perspective, the significant issues appear to be as follows:
Termination clauses in supply contracts
Many contractual agreements include a termination right for a party if the counterparty suffers an insolvency event, such as entering into a moratorium, administration or liquidation, appointing an administrative receiver or provisional liquidator, or if the court orders the summoning of a meeting relating to a compromise or arrangement. CIGA seeks to modify such termination provisions so that they are able to sit alongside the other measures the government has taken which are intended to either stop businesses from tipping over into insolvency or to minimise the economic effects of those that do. As a result, CIGA provides that (subject to some exceptions) termination rights on the occurrence of an insolvency event will not be effective.
It also goes further and says that where a contract provides for a termination right in relation to an event occurring before the start of an insolvency period, the termination right may not be exercised during the insolvency period. The definition of "insolvency period" differs depending on the insolvency procedure in question.
Where these provisions apply, the supplier may only terminate the contract with the consent of: (a) the office holder, in the case of administration, liquidation or the appointment of an administrative receiver or provisional liquidator; (b) a court where a court has summoned a meeting in relation to a compromise or arrangement; or (c) in any other case, the customer.
In addition, the supplier cannot insist that the future supply under a contract is conditional upon, for example, the payment of any outstanding charges in respect of a previous supply.
The new measures do not apply to certain suppliers (such as financial service providers) or certain contracts (such as those which involve financial services).
In addition, “small entities” can benefit from an initial short temporary exclusion period from these provisions until 30 September 2020. To be characterised as a “small entity” the supplier must satisfy two of the following in respect of its most recent financial year:
- Turnover of £10.2 million or less.
- A balance sheet total of £5.1 million or less.
- No more than 50 employees.
These provisions apply to individuals carrying on a trade or business, companies, limited liability partnerships and all other incorporated and unincorporated associations or body of persons.
Accounts and filings
Where a private limited company or limited liability partnership has an obligation to file accounts which falls after 25 March 2020, the period for filing such accounts has been extended from nine months to 12 months following the end of the relevant accounting period. Different extension periods have also been granted for filings by public limited companies.
As well as an extension for filing accounts, other Companies House filing periods have also been increased. So, for example, notification of a director’s appointment has been increased from 14 days to 42 days and the date for registering a charge has been increased from 21 days to 31 days.
These measures are temporary measures which, in the case of private limited companies, apply to all filing dates which fall on or before 5 April 2021.
Meetings of shareholders, classes of shareholders or delegates of shareholders of a company do not need to be held in any particular place and, instead, may be held and votes cast, by electronic or any other means during the period from 26 March 2020 to 30 September 2020. This period can be shortened or extended in three-month intervals, provided the date of extension is no later than 5 April 2021.
In addition, those participating in the meeting need not be in the same place and no shareholder has the right to attend a meeting in person, to vote by particular means or to participate in the meeting other than voting. These provisions apply notwithstanding any conflicting provision in the company’s articles of association.
This is a temporary measure.
If you require further advice in this area, please contact Naomi Trinh, Partner in our Corporate 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.