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Corporate Insolvency and Governance Bill subject to exploitation

View profile for Stephen Downie
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The Corporate Insolvency and Governance Bill currently progressing through Parliament provides that companies in the United Kingdom (with modifications for Northern Ireland) can now seek to stay winding-up proceedings upon making a request of the court together with providing relevant documents.

The introduction of this legislation has a great potential for fraud and indeed at Francis Wilks & Jones we envisage that – while it provides welcome relief – a large proportion of such requests may undermine the public interest by permitting companies to continue trading where insolvency is unavoidable.

This situation may be alleviated by the requirement for a monitor to be appointed and the short period for which such proceedings can initially be suspended (although this may be extended).

Simultaneous with this are the Business Secretary’s proposals to lift any prohibition on wrongful trading for an initial period of three months from 1 March 2020.  However, the Corporate Insolvency and Governance Bill extends this to 4 months to 30 June 2020 (as of writing) and this may be extended further.

This is further enabling companies to continue trading their way out of insolvency.

For companies genuinely impacted by the negative effect of COVID-19, this is a welcome respite and enables both the directors to feel protected and the company to continue seeking to stay afloat.

However, this benefit is twinned by the risk it will be exploited (as is almost certain) and no doubt creditors are the only ones who will be paying the cost incurred to the economy by this legislation (although hopefully the benefit will outweigh this cost).

The net benefit of these changes is to be seen.

If you require any guidance on the Corporate Insolvency and Governance Bill, please do not hesitate to get in touch.