Protect your business with a CVA or IVA

Over the past few months there have been a number of high-profile cases published in the media of

businesses applying for a CVA (Company Voluntary Agreement). These companies go through this process to protect the business and ensure that it can keep trading in the long-term. But CVA’s or IVA’s (Individual Voluntary Agreement) are not just for large businesses and apply to businesses of all shapes and sizes.

As a result of the Covid-19 crisis the government are pushing through the Corporate Insolvency and Governance Bill to help give business more time to recover. There are a number of specific measures that are included in the bill:

• A moratorium blocking legal action being taken against a company, to allow for added breathing space while a rescue plan is sought.

The Bill creates a moratorium during which no legal action can be taken against a company without leave of the court. The moratorium provides companies with formal breathing space from creditor action if they are, or are likely to become, unable to pay their debts, giving companies struggling as a result of COVID-19 the opportunity to survive.

• The suspension of wrongful trading legislation.

The Bill will temporarily remove the threat of personal liability from wrongful trading for directors who continue to trade a company through the crisis with the uncertainty that the company may not be able to avoid insolvency in the future. While this suspension is in place, action will not be able to be taken by liquidators and administrators against directors of insolvent companies for creditor losses as a result of continued trading. This will remove the pressure on directors to close otherwise viable businesses to avoid potential liability. All the other checks and balances on directors will remain in place.

• An Ipso Facto clause preventing suppliers from stopping or threatening to stop supplying

businesses going through an insolvency or restructuring procedure.

Ipso Facto clauses will prevent suppliers from stopping or threatening to stop supplying businesses going through an insolvency or restructuring procedure. When a company enters an insolvency or restructuring procedure, suppliers will often either stop or threaten to stop supplying the company. The Bill will mean suppliers will not be able to jeopardise a rescue in this way. However, if the supply process causes hardship to their business, suppliers will be relieved of this requirement should the court agree. There will also be a temporary exemption for small company suppliers during the COVID-19 response.

• Alternative restructuring procedures for businesses that are viable but experiencing difficulty with debt liabilities.

Businesses that are viable but experiencing difficulty with debt liabilities will be able to restructure under a new procedure.  The procedure allows courts to sanction a plan based on whether it is fair, equitable and in the interest of creditors. Whilst creditors will vote on the plan, the courts will have the power to impose it on dissenting creditors.

• The removal of the threat of statutory demands and winding up petitions based on unpaid debt due to the pandemic (two measures).

The government is legislating to temporarily prevent winding-up proceedings being taken on the basis of statutory demands and to temporarily stop winding-up proceedings where COVID-19 has had a financial effect on the company which has caused the grounds for the proceedings. This gives businesses the opportunity to reach realistic and fair agreements with all creditors. Statutory demands served between 1 March 2020 and 30 June 2020 (or one month after the Bill comes into force, if later) cannot form the basis of a winding-up petition presented at any point after 27 April 2020.

• The provision for virtual AGMs.

The Bill allows companies that must legally hold an AGM or General Meetings to do so by other virtual means, even if company protocol does not normally allow this. As a result, directors will not be exposed to liability for measures that need shareholder endorsement, and shareholders rights are preserved.

• Further relaxation of rules around filing requirements.

Companies House made changes to filing requirements during the Covid-19 emergency, including extending deadlines and therefore countering the threat of penalties for late submissions. However, more flexibility may be required, so the Bill allows the Secretary of State to temporarily make further extensions, enabling struggling businesses to focus on the things that matter most while they have reduced resources and restrictions.

When you read this information ask yourself two questions:

Is your business experiencing cash flow challenges due to the Covid-19 crisis?

Do you need to protect the business from being wound up by creditors?

If the answer is yes to either of these questions, please contact us and we can work with you to help keep your business going where possible and protect you.