Press release

Insolvency reforms could help co-ops survive crisis

Government is introducing new insolvency legislation to give businesses in distress more opportunities to turn things around. Following successful lobbying by Co-operatives UK, these reforms will now apply to co-operative and community benefit societies as well as companies. 

> Read ministerial letter confirming this 

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
  • 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
  • temporary relaxation of wrongful trading rules from 1 March 2020 for 4 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

These measures will increase the chances that co-ops in financial distress survive.

With invaluable input from experts, we have worked closely with government and officials to ensure measures originally designed for companies are carefully modified for societies, where necessary. In this, we have prioritized the preservation of co-operative and community purpose and democratic member control. 

Our lobbying

On 28 March 2020 the Business Secretary announced that government would be fast-tracking planned reforms of UK insolvency law (the moratorium, new restructuring procedure and termination prohibition), to give struggling companies more chance of survival. 

Co-operatives UK was encouraging government to include societies in its planned reforms before the pandemic. After the 28 March announcement, we intervened to ensure societies were included in the fast-tracked process. 

We consulted with key experts and stakeholders, to understand the views of the sector and to help government identify where measures for companies needed modifications when applied to societies. 

> read our position paper for government here

The legislative process and timetable

For companies all these changes will be introduced through the Corporate Insolvency and Governance Bill, which was been introduced in Parliament on 20 May 2020. 

Government will do extra legislative work to adapt these changes for societies, with HM Treasury intending to lay secondary legislation as soon as possible. Economic Secretary to the Treasury, John Glen MP, has written to Co-operatives UK to confirm this. 

The Department for the Economy in Northern Ireland will be legislating as soon as it is able, to bring in these changes for societies there too.  

We cannot be certain when these changes will come into force, though  government is asking MPs to fast-track the Bill and we expect it to be in law by the end of June. HM Treasury (GB) and the Department for the Economy (NI) aim to have their pieces of legislation passing into law around the same time. 

Contact

e: [email protected]

t: 0161 214 1775