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On your behalf, we have been lobbying government for further support for our industry.

 

Corporate Insolvency Bill June 2020

Introduction of the Bill and next steps


The Government introduced the Corporate Insolvency and Governance Bill to Parliament on 20 May. MPs will next consider all stages of the Bill on Wednesday 3 June 2020.

 

Through this Bill, the Government intends to put in place a series of urgent measures to amend insolvency and company law to support business through the impact of the Covid-19 outbreak, and maximise their chances of survival, protect jobs and support the country’s economic recovery.


The new legislation would temporarily suspend wrongful trading provisions — at least until June 30. The Bill would also introduce a moratorium on statutory demands and winding-up petitions where the pandemic has prevented a company paying its bills. Revo is reviewing the Bill and is already in discussions with the Government.


The Bill consists of six insolvency measures and two corporate governance measures. The corporate governance measures will introduce temporary easements and flexibility to businesses during this uncertain time, where businesses are coping with reduced resources and restrictions due to social distancing measures.


The proposed measures


The Bill provides the following measures:


• Introducing a new moratorium intended to provide companies with breathing space to explore options for survival.
• Prohibiting termination clauses that engage on insolvency, preventing suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process
• Introducing a new restructuring plan that will bind creditors to it
• Enabling the insolvency regime to flex to meet the demands of the crisis
• Temporarily removing the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency
• Temporarily prohibiting creditors from filing statutory demands and winding-up petitions for COVID-19 related debts
• Temporarily giving companies and other bodies greater flexibility to hold Annual General Meetings (AGMs) and other meetings in a safe and practicable manner in response to the pandemic
• Temporarily easing burdens on businesses by extending filing deadlines at Companies House
• Allowing for the temporary measures to be retrospective, giving immediate support to businesses during COVID-19.


What do these measures mean in terms of debt recovery?


The relevant provisions in relation to using insolvency proceedings to recover rent or other sums from corporate tenants (or any debtor at all) are to be effective from 27 April 2020 and they are to have retrospective effect in relation to any statutory demand served on or after 1 March 2020.


These provisions come on top of the restrictions already in place to prevent forfeiture, or landlords levying distress through CRAR (Commercial Rent Arrears Recovery), in relation to non-payment of the March's quarter's rent or service charge. The provisions are not limited to landlords; they relate to all creditors, therefore will apply to suppliers and lenders as well. Also, rather than putting the onus on tenants to establish they cannot pay due to the virus, the new provisions in relation to insolvency steps put the obligation on the landlord to establish the tenant can pay notwithstanding the virus.


In relation to debt recovery, the Bill proposes:


1. Companies can far more readily seek protection from any form of proceeding or action by entering into a statutory moratorium if this is necessary to seek to rescue the company as a going concern. This gives the company an initial protection of 20 business days, but this period can be extended for a further 20 business days if they file a notice and certain other documents at court. No action can be taken during this period by any creditor without permission from the court.


2. Any statutory demand served in the period 1 March-30 June 2020 is automatically invalidated so no Winding Up Petition can be presented based upon any such demand. This period will be extended until one month after the legislation is in force so it is likely to extend into, at least, July. The period from 1 March 2020 until one month after the Bill becomes the Act is called "the relevant period".


3. No Winding Up Petition can be presented anyway from 27 April 2020 until the end of the relevant period:


• based on a statutory demand served before the relevant period;
• to enforce a Judgment; or
• because the company is unable to pay its debts;

Unless the creditor has reasonable grounds for believing that the company's financial position and ability to pay has been unaffected by the coronavirus.


The debt collection options landlords currently have


Landlords can wait for the restrictions to expire, but these could well be extended (particularly given that substantial default is anticipated in relation to the June quarter's rents).


They can commence court proceedings to seek to secure a Judgment for all sums due (and costs and interest) that can then be enforced by execution on the tenant's goods (or by a Winding Up Petition if the legislation then so permits). However, tenants may well seek to defend such proceedings on some fanciful ground in order to seek to delay having to make payment. Even when judgment is obtained, tenants can apply to pay by instalments.


The main intention behind this legislation is for landlords and tenants to negotiate payment terms. However, this may be challenging in some cases, as many tenants are not just seeking more time to pay but rather rent concessions (even when they can afford to pay and, in some cases, have been trading throughout).


Restructuring plan


The Bill would introduce a new restructuring procedure, which is similar to a scheme of arrangement, with the addition of the ability to cram down across classes of creditors. Unlike a company voluntary arrangement (CVA), it will have the ability to bind both secured creditors and unsecured creditors.

The provisions provide for a restructuring plan to be proposed between a company and its creditors (and/or members) for the purpose of eliminating reducing, preventing or mitigating those financial difficulties.


Any creditor or member whose rights are affected by the plan must be permitted to participate in the process, but those who have no genuine economic interest in the company may be excluded. Affected members and creditors must be given sufficient information to be able to vote on the plan.


There will be no financial entry conditions which mean that both solvent and insolvent companies can propose the plan. Creditors will vote on the plan in separate classes, which will resemble those that feature in schemes of arrangement. The plan will require the approval of a minimum of 75% in value in each class of those voting.


It will be for the court to grant final approval to the plan if it feels the plan is just and equitable and the plan can be approved by the court even where one or more classes do not vote in favour.


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The government is keen to ensure all the stakeholders have the opportunity to hear more about the proposals and to have any questions and concerns answered. In the coming weeks the Government will be taking action to inform company directors and other stakeholders to these measures, and welcome your support in raising awareness.

 


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Furloughed Space Grant Scheme campaign 

There is a crisis facing the retail sector which has deep and long term impacts across property investment, lending and the supply chain, with potentially devastating consequences for our towns and cities. At Revo, we believe immediate action must urgently be taken and ahead of the June quarter day.

 

Many retail businesses operate on small margins and have had little or no income coming in for several weeks and are at imminent risk. Even once the lock-down starts to be lifted they will take a considerable time to recover, facing continued public health measures impacting both on their revenue and increased costs to manage. Moreover, for many retail occupiers and owners, utilising increased existing debt facilities or accessing the government’s debt based schemes (welcome though these are) is proving not be an option because of the fragility of the retail market and/or because the burden of additional debt will not be sustainable if they are to survive.

 

Without further action on property costs, many furloughed staff will find themselves in the position where their income is protected by the Government but the company that employs them is unable to continue to do so since it can’t meet the costs of trading. Salary support, grants and other public expenditure made in the context of supporting businesses through the current pandemic will have been of no long-term benefit to the economy if those businesses have become insolvent.

 

While welcome, the current offer of Government reliefs, grants and loans will not be sufficient to stave off the imminent collapse of many businesses, with the associated job losses, community impact and economic harm that comes with that. An intuitive stimulus could prevent that.

 

We believe that the only way this issue will be resolved will be through an approach where occupiers, owners, lenders and Government work collectively and the cost burdens are shared by all parties. The furloughed space grant scheme proposed by Revo with BPF and BRC achieves this and will minimise economic harm and widespread job losses.

 

Revo is attending meetings with senior Cabinet Secretaries of State and the Economic Secretary to the Treasury to press for economic support for the industry and reinforce the explanation of the damage that has been done by the moratoriums.

 

From recent conversations with ministers and officials, Government may be open to discussion on the furlough space grant scheme if we can restrict the potential cost to Government and we are therefore investigating the means of doing this. At the same time, we are also looking at ways in which the current moratoriums could be targeted and also intensifying the case for business rates relief, an issue on which Revo has been actively campaigning for some time.

 

The furlough space grant scheme is not the only option under consideration by Government. We remain open to a discussion over alternative proposals which ultimately secure the objective of not requiring an otherwise sustainable company to go into liquidation due to forces far outside its control with devastating consequences across industry.