United Kingdom

Corporate Insolvency and Governance Act 2020

The full effects of the COVID-19 pandemic on the global economy are yet to be seen, but the current forecasts indicate that global insolvencies could increase by 20%, with losses equal to the Gross Domestic Product of Germany and Japan combined [Source Euler Hermes, 19/05/2020]. In reaction to this, governments are actively scrutinising how they can support their domestic economies, reducing the burden placed upon their revenue, resources and support programmes.

In line with the above, the UK Government has introduced substantial changes within the Corporate Insolvency and Governance Act (“CI&GA”), effective 26 June 2020, which is likely to impact any businesses that trade within its borders.

Some of those changes are short-term, temporary measures, designed to alleviate the administrative burden on limited companies as they resurrect trade, post lockdown, including the extension of Company filing deadlines.

Details of the Act can be found, using the attached link:


We encourage you to seek guidance including legal advice, as appropriate, relating to any issues or concerns arising from CI&GA.

CI&GA introduces some temporary measures, which can be summarised, as follows:

  • Temporary extensions to the deadlines for companies to file their annual returns at Companies House.
  • The temporary suspension of creditors ability to issue winding up petitions on statutory demands issued between 01 March and 30 September 2020, unless certain requirements can be satisfied, revolving around the COVID-19 pandemic (see the CI&GA for further details).
  • The temporary suspension of liability for Wrongful Trading for directors and officers of insolvent companies until 30 September 2020.

The CI&GA also introduces some further measures which, like other European countries, are designed to align with US Chapter 11 processes, as a method of preserving jobs, rescuing an otherwise viable business from short-term financial distress and maximising the outcome for supporting creditors. We have highlighted below a summary of these measures, for further details please see the CI&GA and/or seek assistance from professional legal advisers.

  1. A Moratorium, which is not technically an insolvency.

This enables a subject company to obtain temporary protection from its creditors, with the input from an insolvency practitioner, whilst its directors undertake restructuring or recovery actions to preserve the business or prepare for a subsequent insolvency process.

The initial protection period is 20 business days, but can be extended, please see the CI&GA for further details.

The Moratorium also places restrictions upon the recovery options available to suppliers and creditors.

  1. An “Arrangement and Reconstruction of Companies in Financial Difficulty”.

This enables the subject company to propose a compromise arrangement/restructuring plan with creditors or members directly (without formal input from an insolvency practitioner), in order to prevent, mitigate or eliminate financial difficulties. It requires approval by 75% in value creditors and court consent. The court can overturn the creditors’ decision, if it concludes that the arrangement is in the best interests of creditors overall.

  1. The protection of goods and supplies

This new measure restricts suppliers’ ability to stop supplies and terminate their contract, as the result of the subject company’s moratorium or insolvency or entry into a moratorium, arrangement/reconstruction plan or insolvency.

The measure also prevents suppliers from imposing any conditions concerning settlement of pre-existing debts, or other contractual changes.

Impact on credit insurance coverage

Credit insurance policies have traditionally required that insureds stop making shipments or providing services to financially distressed or insolvent customers, but the CI&GA provides that suppliers may be required to maintain supplies. It is therefore reasonable to anticipate that insureds may expect their insurers to protect them for such transactions if payments are not made as the law intends.

Additionally, questions could also arise as to how payment for such supplies should be treated. If coverage is provided, it is reasonable to expect that such payments could be considered as salvage and thus allocated against the original debt being claimed. Insurers may be under pressure to waive their rights to salvage, on the basis that insureds are complying with legal requirements.

Alternatively, insurers may decline to cover such supplies, in which case it may be argued that payments solely for those supplies should not be considered as salvage.

Insureds should consider their situation on an individual basis and each insurance policy must be specifically reviewed to determine the extent, if any, of coverage.

The insurers approached so far, have confirmed that they are carefully reviewing the legislation and considering any necessary amendments to their policy terms, details of which will be provided at the earliest opportunity.

Top tips for clients:

  1. Ensure the appropriate colleagues fully understand their obligations in terms of policy administration and timing, particularly reporting and external recovery action. Insurers are expected to become stricter in their interpretation of policy terms and requirements.
  2. Maintain a pro-active credit management interface with customers. This greatly assists with identifying potential problems early, thereby maximising the opportunities to mitigate potential losses pre-insolvency.
  3. Review the company’s Terms and Conditions of Sale with guidance from legal advisors where necessary.