The UK Government has introduced various provisions in order to help viable companies survive the COVID-19 pandemic. These provisions are contained within the Corporate Insolvency and Governance Act 2020 (“CIGA”), which was brought into force on 25 June 2020. Of the provisions introduced, the moratorium is key for businesses that have been impacted by COVID-19.

If eligible under CIGA, directors of a company are allowed to implement a moratorium to prevent a creditor taking any action against the company concerned. Once the moratorium is in place, the company is still controlled by the directors but their actions are assessed by a qualified insolvency practitioner (referred to as a monitor). 

One of the main benefits in using the moratorium is that it allows a company a ‘payment holiday’ in relation to specified pre-moratorium debts. There are various ways to obtain this moratorium, but if successful it can last up to 20 business days and be extended further up to a period 12 months (with creditor consent).

Another tool introduced by CIGA for businesses during this time is the Restructuring Plan (“ Plan”), which is modelled on the previous schemes of arrangement available. This allows directors to propose a Plan if in financial difficulty (which is approved by the Court) to compromise the claims of creditors/members and allows them to continue trading and increase funds during this downturn.

The final provision we wish to flag within CIGA is the extension of prohibition of termination due to insolvency. This provision introduces new restrictions that apply to suppliers of goods and services (there are exceptions) and prevent these from terminating supply due to insolvency of a company. This will be of significant importance if your business is reliant on the continuation of supply/goods agreements to continue business.

For a more detailed summary of these provisions, please see our full note here.

For tailored advice regarding this or another related matter, please contact Philip Sewell, Sarah Walker or another member of the commercial disputes and regulation team.

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