On 14 May 2020, the FCA published a new web page concerning the financial services exemptions on the Corporate Insolvency and Governance Bill (the Bill).
The Bill is expected to include new insolvency and corporate governance measures to help businesses affected by the COVID-19 pandemic. In particular, the Bill will contain specific provisions for the financial services sector to ensure that the existing special insolvency regimes for financial services firms remain effective.
The FCA web page notes that the Bill provides for the following measures:
- Company moratorium: The Bill proposes to create a moratorium during which no legal action can be taken or continued against a company without leave of the court.
- Suspension of Ipso Facto (Termination) clauses: When a company enters an insolvency or restructuring procedure, suppliers will often either stop or threaten to stop supplying the company. The supply contract often gives them the right to do this, but it can jeopardise attempts to rescue the business. The Bill will mean suppliers will not be able to jeopardise a rescue in this way. The proposals include safeguards to ensure that continued supplies are paid for, and suppliers can be relieved of the requirement to supply if it causes hardship to their business.
- Temporary suspension of wrongful trading provisions from 1 March 2020 for 3 months: The Bill proposes to temporarily remove the threat of personal liability arising from wrongful trading for directors who continue to trade a company through the COVID-19 pandemic with the uncertainty that the company may not be able to avoid insolvency in the future. Liquidators and administrators will not be able to take action against an insolvent company’s directors for any losses to creditors resulting from continued trading while the wrongful trading rules are suspended.
The FCA states that these measures will not be available for some financial services firms and contracts. The list of exclusions from the measures is expected to include banks, investment firms, insurers, payments and e-money institutions and certain market infrastructure bodies. Firms that safeguard client assets are also expected to be excluded from the company moratorium during the coronavirus period and temporary suspension of wrongful trading provisions.
The FCA also states that the Bill proposes to provide a new Restructuring Plan which is expected to be available to financial services firms, through the appropriate safeguards including a role for the FCA and PRA. The Bill also proposes to contain other insolvency and corporate governance changes where no specific exclusions for the financial services sector are expected. These include:
- Temporary suspension of Statutory Demands and Winding up Petitions (2 measures).
- Temporary flexibility of Annual General Meetings.
- Temporary flexibility of Filing Requirements.
The FCA reports that some of the proposed measures are expected to apply retrospectively. For example, the temporary ban on the use of statutory demands is expected to apply from 1 March (until 30 June) and the temporary ban on the use of winding up petitions is expected to apply to petitions made from 27 April (until 30 June).
The Bill is due to begin its passage through Parliament shortly.