The CIGA has made both permanent and short-term changes to the insolvency regime in response to the coronavirus pandemic and its consequences. What will be the effects?
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This reform could be incredibly influential and critical to assisting companies facing short term financial distress as a result of Covid-19 and economic decline. It aims to effectively increase flexibility of the insolvency process and suspends parts of insolvency law so directors can continue trading without threat of personal liability.
However, there are concerns by some experts surrounding its impact on benefit pensions, failing to clarify its position surrounding the role of trustees of pension schemes (this will likely be determined later in court, in consideration of protections afforded under legislation like the Pensions Act 2004).
It will be interesting to see how this restructuring plan progresses and the types of roles assumed by the Pensions Regulators and Pension Protection Fund.
For a more detailed analysis of potential implications and more information about the act generally I recommend referring to the following links:
https://www.lexisnexis.com/uk/lexispsl/pensions/document/393781/55KG-P041-F18C-C0RS-00000-00/How-corporate-insolvency-affects-pensions_overview
https://www.dlapiper.com/en/uk/insights/publications/2020/06/uk-corporate-insolvency-and-governance-bill/
An interesting and impactful reform. The new steps will change the English restructuring and insolvency law. The process add “debtor friendly” protections into a system which has long been regarded as “creditor friendly”.
This new reform is of significant importance as it means that, subject to the exceptions, suppliers are required to continue to supply goods or services to an insolvent company, even when that supplier may be owed significant sums of money by the insolvent company prior to its insolvency.
Since COVID-19, companies have been struggling to keep up with their payments and therefore have fallen into the inevitable insolvency hole. However, with this reform it can bee seen that the Government has realised the struggles and importance of companies to remain in business. Insolvency does not just end the life of a business, it affects the livelihood of many: staff (who will end up seeking benefits), suppliers who will suffer and even customers who have to now navigate through this change.
It is important to give business a surviving chance which will help the wider economy and ensure competition is intact.
Of course, this will also have negative impacts as suppliers now have to be very careful which may lead to intrinsic conditions such as retention of title and charges. It may also lead to “zombie companies” which are risking investor money and taking up space for other businesses to enter the market.
Articles I would recommend to understand the matter further would be:
RPC: https://www.rpc.co.uk/perspectives/retail-therapy/corporate-insolvency-and-governance-act-supplier-terms/
Norton Rose Fulbright:
https://www.nortonrosefulbright.com/en/knowledge/publications/5ac21a15/the-uk-corporate-insolvency-and-governance-act-2020
Great answer! Very useful resource, thank you for sharing.