This blog post was written by a Freshfields team comprising Ken Baird, Catherine Balmond, Lindsay HingstonRichard Tett, Adam Gallagher, Neil Golding, Craig Montgomery, and Katharina Crinson

On 26 June 2020 the Corporate Insolvency and Governance Act 2020 (the Act) came into force. The Act included far-reaching wholescale reforms to the UK’s restructuring toolbox, including the introduction of the restructuring plan, which has the potential to be a gamechanger for restructurings.

It also included temporary measures dealing with COVID-19 impacts on companies.  The two most significant temporary measures for companies facing financial difficulties as a result of the COVID 19 pandemic were:

  • A suspension of personal liability for wrongful trading initially until 30 September 2020.
  • A temporary prohibition on creditors from filing statutory demands and winding up petitions for COVID-19 related debts also initially until 30 September.

On 24 September 2020 the UK government extended the prohibition on creditors from filing statutory demands and winding up petitions for COVID-19 related debts to 31 December 2020.

The suspension of personal liability for wrongful trading has not been extended and will therefore expire on 30 September.  There is no reason given in the explanatory memorandum as to why this particular measure has not been extended.

The reason for extending the temporary provisions is to continue to provide breathing space to companies whilst coronavirus related restrictions remain in place (including social distancing and regional lockdowns).

In the explanatory memorandum the government states that the extension ensures that the measures remain available to companies that may be in financial difficulties during this difficult and unprecedented time and whilst the Government’s plans are to wind down the package of financial support.

The CIGA provided that the temporary periods can be extended – for a maximum period of three month at a time (hence the current extension until the end of December) and in any event, not later than 5 April 2021. We will have to see whether come December the measures will be extended into the new year.

Meanwhile in Europe….. on Friday 18 September 2020 the German Federal Ministry of Justice published draft legislation which has the potential of fundamentally changing the restructuring landscape in Germany. The new legislation will implement the European restructuring directive and introduce a preventive restructuring regime for Germany. It also contains proposed changes to the German Insolvency Code following an evaluation of the current status. The new rules include:

  • The restructuring plan (scope of plan, voting rules, cross-class cram-down);
  • The moratorium;
  • Protection of new financing;
  • Shift of fiduciary duties; and
  • Modified insolvency triggers.

You can join us for a webinar on 2 October at 12.30 to find out more.