FREE CHAPTER from ‘The Corporate Insolvency and Governance Act 2020 – A Practical Guide’ by Stephen Allinson


An Act to make provision about companies and other entities in financial difficulty; and to make temporary changes to the law relating to the governance and regulation of companies and other entities.”

The Corporate Insolvency and Governance Act 2020 (referred to throughout this book as “the Act”) has been described as potentially the most significant change to insolvency and restructuring law since the seminal Insolvency Act 1986. The 1986 Act created practices and procedures that are now very familiar to us, such as administration, corporate and personal voluntary arrangements and statutory demands. This Act creates two new corporate insolvency rescue procedures, as well as bringing into force other temporary and permanent insolvency reforms.

The immediate background to the Act is clearly the COVID-19 pandemic and has been born out of that hugely challenging situation, although some of the reforms are also based on the 2018 Government response to the consultation on Insolvency and Corporate Governance. At the daily coronavirus press conference on 28th March, the Secretary of State for BEIS, the Right Honourable Alok Sharma MP, announced a series of reforms to the insolvency process to counter the economic crisis the United Kingdom was facing. These proposals were then further developed by a press release, dated 23rd April, concerning winding up petitions and statutory demands.

In early June, the Insolvency Service published an overview of the Bill (as it then was) via a fact sheet and it can be found at:

After a period of very intense work, notably by the policy and legal teams in the Insolvency Service and related Government departments, the Bill received its first reading in the House of Commons on 20th May. It then progressed through Parliament in June.

It came into force on 26th June 2020 and this was the culmination of a very intense month for Parliament. The overarching objective of the Act is to create structures that will provide businesses with the flexibility and breathing space they need to continue trading and avoid insolvency during this period of economic uncertainty and beyond. It runs to almost 250 pages, and consists of 50 substantive sections and 14 Schedules. Many amendments to existing legislation are included, alongside completely novel provisions. This does make the navigation of the Act sometimes challenging, especially as there are also a series of carve outs and exceptions and exclusions to take account of, particularly in the financial services sector.

This book sets out the main areas of the insolvency and restructuring legislation in the Act, together with related provisions, and provides guidance on the practical and procedural application of the legislation. Inevitably, being published so soon after the Act has received Royal Assent, this book details the law prior to any testing from the courts. As is the nature of our legal system, court challenges will follow as the Judges interpret the law. In addition we can expect further guidance in the form of more detailed Rules, Practice Directions and Practice Statements. Indeed, we have already seen both a Temporary and Permanent Practice Direction issued as well as a Practice Statement to which reference will be made in the appropriate chapters.

The Act also needs to be considered against the backdrop of huge economic and personal uncertainty. At the time of writing in the summer of 2020, the UK is bracing itself for an economic downturn as the country seeks to move forward after the pandemic. Whether these new procedures aid in the recovery will become clear with time, but that is the rationale of the Act as announced by the Government.

It is interesting to note that the insolvency statistics, which are now produced monthly by the Insolvency Service, are showing a considerable drop in the number of formal appointments compared with similar periods in 2019. The June 2020 figures show that there were 732 company insolvencies in England and Wales. These comprised 557 creditors’ voluntary liquidations; 61 compulsory liquidations; 100 administrations and 14 company voluntary arrangements. This total figure was 22% lower than the overall total in May which was 944 and 50% lower than the figure in June 2019. Most commentators believe this is the “lull before the storm” economically, and many insolvency and restructuring practices are preparing themselves for very busy periods of work. Economic and business experts predict a recession worse than the “credit crisis” of 2008/9.

Against this backdrop, what are the key headline provisions in the Act?

There are five main insolvency related measures included in the Act, together with some miscellaneous company reporting and filing changes. As stated earlier, the company rescue proposals had already been announced by the Government and were in development before Covid-19, through the 2018 Consultation on Insolvency and Corporate Governance. This was part of the (then) Government’s focus on delivering a strong business environment in the UK. It sought views on ways to improve the insolvency rescue framework and also to reduce the risk of company failures occurring through poor governance or stewardship Some of the measures in the new Act arise directly out of the Government response to that 2018 consultation, although other ones, notably around the areas of greater potential consequences, both financial and otherwise, for directors, have not been implemented through this Act. Thus, what we now have are both permanent and temporary reforms to corporate insolvency and related processes.

In summary the provisions are:

1. Company Moratorium

The Act gives struggling businesses a formal breathing space to pursue a rescue plan. It creates a moratorium during which no legal action can be taken against a company without leave of the court. The decision to introduce the moratorium now is in order to ensure that companies that are struggling as a direct result of the pandemic are given the opportunity to survive. However, this is a permanent measure from the Act, albeit supplemented with some special temporary provisions.

2. Restructuring Plan

The provisions here are to enable viable companies struggling with debt obligations to restructure under a new procedure. It allows courts to sanction a plan that binds creditors to a restructuring plan if it is fair, equitable and in the interests of creditors. Creditors vote on the plan, but the court can impose it on dissenting creditors. It is similar to, but distinctive from, the existing Scheme of Arrangement which is laid out in the Companies Act 2006.

3. “Ipso Facto” (Termination) Clauses

When a company enters an insolvency or restructuring procedure, key suppliers will often either stop or threaten to stop supplying the company. The supply contract may well give them the right to do this, but doing that could materially jeopardise any attempt to rescue the business. The Act will ensure that suppliers will not be able to hinder a rescue in this way. There are safeguards to ensure that continued supplies are paid for, but there are protective mechanisms for suppliers if the requirement to supply causes hardship to their business. There are also some temporary provisions in the Act for “small company” suppliers during the pandemic.

4. Wrongful Trading Provisions

The Act potentially removes for a limited time personal liability arising from wrongful trading for directors who continue to trade a company through the crisis. It has been hailed by some commentators as a suspension of wrongful trading, but the provisions are not as simplistic as that. The clear intention is to remove the pressure on directors who may be tempted to place otherwise viable businesses into insolvency to avoid personal liability. All other potential director actions remain in place.

5. Statutory Demands and Winding up Petitions

The Act seeks to help struggling businesses by temporarily removing the threat of winding up proceedings where a debt is unpaid due to Covid-19. These are temporary provisions to void statutory demands issued against companies during the pandemic. This gives businesses the opportunity to reach agreements with creditors rather than face insolvency. In addition, extra checks on the issuance of winding up petitions and obtainment of winding up orders are introduced.

6. Company Law Reporting and Filing

Certain company law procedures have been temporarily relaxed including those around the holding of Annual General Meetings and corresponding filing requirements. Reference is made to these provisions in Chapter 9.

In terms of the territorial coverage, the Act contains provisions which apply in England, Wales, Scotland and Northern Ireland. This book will concentrate on the jurisdiction of England and Wales.

Inevitably, litigation surrounding these provisions will follow, and, where appropriate, this book makes reference to recent cases which may be indicative of how this area of law could progress. This is a very fast moving subject, however, so it is important to remain fully up to date with the inevitable case law and potential legislative changes. This is because the Act contains many and extensive powers for the Secretary of State to modify legislation as deemed necessary by way of further Regulations and other provisions. Such clauses are often interestingly called “Henry VIII” provisions, as legal historians will know, and reference to these is made throughout all relevant chapters.

The Insolvency Service recognised the significance of this area and published a factsheet when the Bill was first published. It can be found at:

It is important to note that this document (as the other factsheets that were produced) pre-dated the full passage of the Bill through Parliament and so does not reflect the Parliamentary changes that took place before the Act received Royal Assent.

Finally, to complete the book, Chapter 10 looks at further changes and developments that are on the horizon in the insolvency and restructuring world.

The law, as I understand it, is accurate as at 31st July 2020.