As I mentioned in my article in July 2020, the Act introduced two new insolvency provisions: a Moratorium (see now Part A1 Insolvency Act 1986 as amended) and the concept of a Restructuring Plan (see Part 26A Companies Act 2006 as amended).

These were both introduced to help companies in financial distress investigate options for survival, the Act also introduced some temporary measures specifically focused on supporting companies struggling due to the COVID epidemic.  These include:

  • suspension of wrongful trading liability of directors
  • restrictions on presenting winding-up petitions and on winding-up orders where the company cannot pay its debts due to the COVID epidemic
  • exclusion of small suppliers from the prohibition on terminating a supply contract for the customer’s insolvency

These temporary measures were originally introduced to be retrospectively effective from 1 March 2020 until 30 September 2020.   Since then these provisions have been successively extended.

With effect from today these provisions have been extended once again. They will remain effective until 30 June 2021. 

In addition, parliament approved in June 2020, and has once again extended, temporary measures aimed to help companies make use of the Moratorium provisions.  These provide for:

  • temporary rules supporting the Part A1 moratorium process
  • the waiver of the requirement that a UK company seeking a Part A1 moratorium must use a court application if they are subject to a winding-up petition.
  • the relaxation of the requirement that a company seeking a Part A1 moratorium has not been in an insolvency procedure or Part A1 moratorium in the previous 12 months.

With effect from today these provisions have been extended until 30 September 2021.

Charitable companies, Charitable Incorporated Organisations (CIOs) and Charitable Community Benefit Societies (other than private registered providers of social housing or registered social landlords in Wales or credit unions) can make use of the Moratorium provisions.  These freeze creditor action against the company for up to an initial period of 40 days giving it time to consider its options which could include a Company Voluntary Arrangement, a Restructuring Plan (not available to CIOs), Administration or Liquidation.  Critical creditors however must still be paid and these include banks, employees and debts incurred during the moratorium.

Charities facing financial difficulties are encouraged to seek professional advice at the earliest opportunity if they have any concerns about their charity’s ability to continue to trade as going concern as by doing so they will maximise the options going forward.

Further guidance on managing financial difficulties is provided by the Charity Commission: https://www.gov.uk/guidance/coronavirus-covid-19-guidance-for-the-charity-sector#further-advice-on-managing-financial-difficulties

If you or a charity for which you act are concerned about any of the issues raised in this article or have any queries about the management of your charity, please do get in touch with me.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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