The Corporate Insolvency and Governance Act 2020 (Act) received Royal Assent on 25 June 2020. The majority of its provisions commenced on 26 June 2020, with the exception of the temporary measures which have retrospective effect from 1 March 2020. 




Ordinarily, a director may be personally liable to contribute to the assets of the company where they allow the company to continue trading and they knew, or ought to have known, that there was no reasonable prospect of the company avoiding insolvent liquidation or administration, and failed to take every step possible to minimise losses to creditors, with a resultant worsening of the company's financial position.

Clause 12 of the Act provides that the Court is to assume that the person is not responsible for any worsening of the financial position of the company or its creditors that occurs during the period from 1 March 2020 until 30 September 2020.

The suspension does not apply to a range of financial services companies, including insurance companies, Banks, electronic money institutions and building societies.

The Act provides that the relevant period may be extended for up to six months using secondary legislation.


The impact of COVID-19 has caused great uncertainty around trading conditions, making it very difficult for directors to accurately predict and forecast the overall impact of COVID-19.  Parliament was very keen to remove the threat of personal liability for any worsening of the company's financial position during the relevant period, to allow directors to take some time to understand as far as possible what the overall impact of COVID-19 might be.  This is intended to prevent businesses which would be viable but for the impact of COVID-19 from closing.



Schedule 10 of the Act contains various provisions aimed at preventing a significant number of winding up petitions from being issued, including the following:

  • no petition can be issued in the relevant period (27 April 2020 until 30 September 2020) based on a statutory demand served between 1 March 2020 and 30 September 2020;
  • no petition is to be issued during the relevant period unless the creditor has reasonable grounds for believing either (i) COVID-19 has not had a financial impact on the company; or (b) the debt would have arisen even if COVID-19 had not had an impact on the company;
  • any winding up order made between 27 April 2020 and up to and including 25 June 2020, which would not have been made had the Act been in force, is void, provided that the order would not have been made if the Act was in force at that time (this is likely to require Court determination as to whether an order would have been made);
  • for petitions presented between 27 April 2020 and 30 September 2020, the deemed commencement date of any liquidation is the date of any order, and not the date of presentation of the petition; and
  • for petitions presented after the Act comes into force, and before the end of the relevant period, the rules on advertisement are amended such that no petition shall be advertised until the Court determines whether it is likely to make a winding up order.

The Act provides that the relevant period may be extended for up to six months using secondary legislation.


Parliament has sought to prevent aggressive creditor action and to encourage consensual discussions between parties, otherwise there could be a significant number of winding up petitions and subsequent liquidations (with a winding up order serving to terminate employment contracts).

The deferral of the deemed commencement date of a liquidation avoids the impact of s.127 Insolvency Act 1986, which provides that any disposition after the commencement of the winding up is void.  The consequences of the amendment are that a company can continue to trade, and operate bank accounts, without seeking a validation order from the Court.  

Banks should also be comfortable in not freezing accounts, which happens once a Bank becomes aware of a petition.  To that end, the rules regarding advertisement of petitions have also been amended such that no petition issued between the Act coming into force and the end of the relevant period (30 September 2020) can be advertised until the Court considers whether the petition is permitted by the Act.




Clause 1 of the Act introduces a new Part A1 to the Insolvency Act 1986, pursuant to which a company can now obtain a free standing moratorium to provide some breathing space whilst they explore rescue and restructuring options.  Directors remain in control of the company whilst a Monitor (a qualified insolvency practitioner) monitors the company's affairs.

Prior to obtaining a moratorium, the Monitor must state that, in their view, it is likely that the moratorium would result in the rescue of the company as a going concern (or, where a moratorium is sought during the relevant period, would do so if it were not for any worsening of the financial position due to coronavirus).

All companies are eligible, save for certain insurance, payment and investment firms and other financial institutions, unless they are, or have been, subject to a current or recent insolvency procedure.  The directors must state that the company is, or is likely to become, unable to pay its debts.

The moratorium is initially 20 business days, but can be extended (not earlier than 15 business days in to the initial period) for a further 20 business days without creditor consent, or for up to one year with creditor consent or by way of Court application.  If a CVA is proposed during a moratorium, the moratorium is extended until the CVA is disposed.

The moratorium provides a payment holiday for pre-moratorium debts save for certain specified debts (listed below) and prevents enforcement and payment of pre-moratorium debts, insolvency proceedings, enforcement of security by secured creditors and other legal proceedings.  The specified debts which are not subject to a payment holiday are:

  • the Monitor's remuneration; 
  • goods or services supplied during the moratorium;
  • rent in respect of the moratorium period;
  • wages or salary;
  • redundancy payments; and
  • debts or other liabilities arising under a financial services contract (including lending (and factoring and financing of commercial transactions) or financial leasing).

During a moratorium, a company may only pay pre-moratorium debts which are subject to a payment holiday with the consent of the Monitor or the Court (unless it is a sale of a charged asset with the consent of the security holder), if the amount to be paid exceeds the greater of (i) £5,000 and (ii) 1% of the value of unsecured debts when the moratorium began.

In the event that an insolvency event occurs within 12 weeks of the expiry of a moratorium, moratorium debts and priority pre-moratorium debts (being those debts for which the company doesn't have a payment holiday) have super-priority, save that debt which is accelerated during the moratorium does not enjoy such priority (which is a change to the Bill that would have entitled a lender to accelerate a debt during the moratorium and to enjoy super-priority in respect of such debt).

There is no requirement to have a particular outcome in mind at the time of entry into a moratorium.


The aim of the moratorium is to give a company breathing space to explore restructuring options and to facilitate a rescue of the company, whether by way of a CVA, a restructuring plan (see below) or an injection of new funds.  The process is purposefully streamlined (relying upon the existing filing methods for 'out of court' appointments) to avoid unnecessary additional costs for a company.



Clause 7 and Schedule 9 of the Act introduce a new Part 26A into Companies Act 2006, pursuant to which a company in financial difficulty can propose a restructuring plan, which allows it to compromise certain creditors, or classes of creditors, or member, or classes of members.  A restructuring plan is available to every company which is liable to be wound up under the Insolvency Act 1986, which includes foreign companies.

A restructuring plan is available to both solvent and insolvent companies that satisfy two conditions:

  • the company has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern; and
  • a compromise or arrangement is proposed between the company and (i) its creditors, or any class of them; or (ii) its members, or any class of them, and the purpose is to eliminate, reduce or prevent, or mitigate the effect of any such financial difficulties.

The process to approve a restructuring plan is similar to a scheme of arrangement, i.e. an application to Court to summon a meeting of creditors or members (or classes of each), followed by a meeting and an application to Court to sanction the restructuring plan.

All affected creditors/members must be permitted to participate in the meeting unless the Court is satisfied that no member of the relevant class has a genuine economic interest in the company.

If 75% in value of the creditors/members (or classes of each, as relevant) who vote agree a restructuring plan, the Court may sanction that arrangement.  If there are dissenting creditors/members (or classes of each, as relevant), the Court can still sanction the plan if:

  • the Court is satisfied members of the dissenting class would not be any worse off in the event of the relevant alternative (being what the Court considers may happen if the plan is not sanctioned); and
  • the compromise has been agreed by 75% in value of a class or creditors of members who would receive a payment or have a genuine economic interest in the company, in the event of the relevant alternative.

Once sanctioned, a restructuring plan binds all creditors/members and the company.

The main differences between a restructuring plan and a scheme of arrangement are:

  • the condition of financial difficulties, current or anticipated, to be eligible for a restructuring plan – no such condition applies for a scheme;
  • for a scheme of arrangement to be approved, you need 75% of each class of creditors/members to vote in favour and a majority of creditors by number of each class – for a restructuring plan there is no requirement for a majority of creditors by number; 
  • the Court can exclude 'out of the money' creditors/members from the meeting of creditors/members; and
  • cross-class cram down is not available in a scheme of arrangement.

A restructuring plan is an alternative tool to a CVA and a scheme of arrangement, albeit much of the practical machinery of a restructuring plan is based on the process for a scheme of arrangement.  

CVAs do not affect the rights of secured creditors or preferential creditors without their consent.  A restructuring plan is similar to a scheme of arrangement but in addition includes the ability for a company to bind a class of creditors (or members) to a restructuring plan even where not all classes have voted in favour of it – the so called cross-class cram down.  This is always subject to Court approval but, in theory, can prevent those creditors/members who are 'out of the money' from blocking the scheme.



Clause 14 of the Act inserts a new section 233B into the Insolvency Act 1986, pursuant to which any provision in a contract for the supply of goods or services ceases to have effect where a company becomes subject to an insolvency procedure (including new Part A1 moratorium, administration, liquidation, CVA) if the contract would terminate due to insolvency or the supplier would be entitled to terminate.

Further, a supplier cannot require pre-insolvency debts to be paid as a condition of making further supplies.

A supplier can only terminate a contract if the office holder or the company consent, or if the Court is satisfied that the continuation of supply would cause the company hardship.

There is no requirement for the office holder (or any director) to provide a personal guarantee.

There is an exclusion of the new provisions where:

  • the company or the supplier are involved in financial services (i.e. are an insurer, a Bank, an investment firm or payment institution); or
  • the relevant contract involves financial services (i.e. a loan agreement, a swap agreement, a derivative, a spot contract).

There is also a temporary exclusion of the provisions in s.233B for small suppliers where the insolvency procedure occurs during the relevant period (being the date the Act comes into force until 30 September 2020).


The policy intention is to help companies trade through a restructuring or insolvency procedure, and to maximise the opportunity for rescue of the company or the sale of business as a going concern. 

Please contact our Restructuring team should you have any specific queries on the Act:

Key Contacts

Andy Bates

Andy Bates

Partner, Restructuring
Leeds, UK

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Ged Barnes

Ged Barnes

Partner, Head of Restructuring - UK & International
Manchester, UK

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