The UK Government announced on 28 March 2020 that it would be amending the current insolvency laws in response to the COVID-19 crisis. Little detail has been provided to date except that the Government has said the changes will include the implementation of certain reforms that were announced in August 2018. Legislation is to be put before Parliament when MPs return after the Easter recess on 21 April 2020.
Among the proposed reforms is the ability for companies to seek a moratorium to provide them with breathing space to undergo a rescue or restructure process to avoid an unnecessary insolvency. If the reforms mirror the August 2018 proposals, then companies would need to be solvent to seek a moratorium. Furthermore a rescue would have to be more likely than not, and the company would need to be able to pay its debts as they fall due during the moratorium period.
If as per the August 2018 reforms, the period of moratorium will initially be 28 days. The August 2018 reforms contemplated an extension of a further 28 days if the qualifying conditions continued to be met. Beyond 56 days an extension would require the agreement of a majority of both secured and unsecured creditors.
In addition to a moratorium, other proposed reforms include a prohibition on the enforcement of termination rights due to the insolvency or financial condition of the other party to enable companies to buy supplies like energy, raw materials and broadband. There is also a proposal to introduce a new restructuring procedure (which could be used in conjunction with the moratorium).
In addition to reforms based on the August 2018 proposals, as part of these changes to Insolvency law, the UK Government has said it will temporarily ‘suspend’ the offence of wrongful trading retrospectively from 1 March 2020. Again, detail is awaited to understand more fully the extent of this change.