Businesses struggling due to the pandemic are being offered a lifeline with one of the largest shake-ups of insolvency laws in nearly 20 years.
The Corporate Insolvency and Governance Act 2020 will give companies the breathing space and tools required to maximise their chance of survival, according to the North West branch of the insolvency and restructuring trade body R3.
The Act, which has now passed into law after receiving Royal Assent at the end of last week, has also been welcomed by a string of other business groups including the accountancy body the ICAEW and the Insolvency Practitioners’ Association (IPA).
R3 North West Chair Allan Cadman, a partner at Poppleton & Appleby, said: “Our members already play a key role in assisting struggling firms through financial difficulty, and the Act gives them additional tools to support this important work at a critical time for the economy. These tools now need to be tested in practice, but we are hopeful that they will prove to be successful.”
The new Act introduces a moratorium which will give struggling companies a period of 20 business days to consider a rescue plan during which time they are protected from winding up petitions and legal action. This can be extended to 40 business days, with further extensions at the agreement of creditors or the court.
Further measures include temporary changes to wrongful trading provisions, which will enable businesses to continue to operate without the threat of personal liability to directors.
Allan Cadman added: “The legislation will give both solvent and insolvent businesses crucial breathing space and increased flexibility to review options without being pushed prematurely into an insolvency procedure. This new approach could make a significant contribution to repairing the economic devastation caused by the current pandemic.”