Policy win for co-ops
The insolvency reform measures - brought in partly as a response to Covid-19 - now apply to co-operative and community benefit societies as well as companies.
We worked closely with government to ensure measures originally designed for companies were carefully modified for societies. We prioritised the preservation of co-operative and community purpose and democratic member control.
Summary of changes
- A new moratorium period for financially distressed businesses, during which time directors remain in control and creditors cannot take action against them
- A new restructuring procedure, which would allow a business to bind all creditors, including junior classes of creditors, even if they vote against the plan
- A prohibition of 'ipso facto' termination clauses in business supply contracts, whereby suppliers terminate supply contracts on the grounds that their customer has entered a formal insolvency procedure. This is intended as a means of enabling businesses in distress to trade out of their difficulties
- A temporary period of added protection against winding up petitions and orders if coronavirus has had a legitimate financial impact on the society, now running until 30 March 2021
- A temporary period of relaxation of the normal rules for entering a moratorium, now running until 30 March 2021
A temporary relaxation of wrongful trading rules from 1 March 2020 for four months, removing the threat of personal liability for directors who continue to trade a business through the pandemic where its uncertain that they can avoid insolvency in the future