The Corporate Insolvency and Governance Act 2020

What do you need to know? ..

The Corporate Insolvency and Governance Act 2020 received Royal Assent and became law on 25 June 20. The Act contains some significant changes to insolvency legislation and a new framework to consider.


  • Provides a payment holiday for most pre-moratorium liabilities in order to give a Company the breathing space to restructure and avoid formal insolvency.
  • Minimum period of 20 business days. Can be extended for a further 20 business days or longer with creditor/court approval.
  • During the moratorium period:
    • Creditor enforcement is prohibited including winding up petitions, receiverships, Administration by QFCH appointment, landlord forfeiture and repossession of property on HP.
    • No legal processes can be commenced against the company by a third party.
    • Specific liabilities arising during the period, e.g. new orders for goods and services, rent and wages (including holiday and pensions) and loans must be paid or otherwise discharged during the moratorium.
    • No credit can be obtained without the moratorium being disclosed.
  • Most companies are eligible as long as:
    • They are, or will become, unable to pay their debts when they fall due, i.e. They are insolvent.
    • An Insolvency Practitioner consents to act as Monitor.
    • Monitor must consider the moratorium would likely result in a companies’ rescue as a going concern, i.e. they need time and protection from creditors to generate funds and/or implement a rescue plan such as a Company Voluntary Arrangement.
  • If the Company enters insolvency within 12 weeks of the moratorium ending, certain unsatisfied post moratorium liabilities or pre moratorium liabilities without a payment holiday will be payable in priority to all other debts and expenses.

Protection of Supplies

  • Measures introduced to ensure continuity of supply in insolvency situations.
  • Applies to moratorium and other insolvency processes such as administration and liquidation.
  • Prevents automatic termination or right to termination of supply contracts. There is similar legislation already in place for utility and IT supplies.
  • Suppliers cannot require the settling of existing debt as a condition of supply.
  • Does not necessarily apply to suppliers who are small companies.

Wrongful Trading

  • Directors will not be considered responsible for worsening the position for creditors between 1 March 2020 and 30 September 2020 or 26 November 2020 and 30 June 2021 in the context of wrongful trading claims.

Rescue Plan

Companies propose a restructuring plan to compromise various liabilities across its debt structure and different creditor class. As with a Scheme of Arrangement, the plan requires 75% support from each creditor class, however the Court has discretion to force through a proposal notwithstanding certain classes may dissent if the proposal does not prejudice their interests compared with the alternative such as liquidation or administration.

Provisions to Amend

There is considerable scope within the Act for various provisions to be amended at the discretion of the Secretary of State. As a result the legislation and its interpretation is likely to continue to evolve over the coming months and will need close monitoring and review.


Considerations for Lenders and Creditors


  • Temporarily prevents pursuing debt through an insolvency process or enforcing security, such as appointing a receiver.
  • Explicitly prevents floating charges from being crystallised.
  • Risk that asset base/values will dissipate if moratorium unsuccessful in rescuing company.
  • No automatic right to notice before the moratorium or say in who the monitor is.
  • Court can enforce disposal of property even if subject to a charge as long as ‘market value’ is returned but there is no requirement to redeem chargeholder interests in full.
  • If Company wound up there is a risk that security is diluted by priority debts arising post moratorium.
  • Cannot withhold supply or request payment of the outstanding account unless supplier is classed as a small company or can demonstrate financial hardship by continuing to supply.
  • Company’s are restricted from paying more than £5,000 in respect of pre moratorium debts with a payment holiday, i.e, cannot make ransom payments to creditors who are still able to withhold supply without monitor or court consent.


  • Likely to require ongoing funding so will need to cooperate and involve senior lenders in plan.
  • Most lending and other financial contracts, e.g. bank loans, overdrafts are not subject to a payment holiday. The company must continue to service these contracts as post moratorium liabilities. These obligations will rank in priority to other debts in the event of insolvency within 12 weeks of the moratorium ending.

Lenders are still able to make demand, assuming there is an event of default, and crystallise a post moratorium liability which cannot be serviced with the likely result that the moratorium must be brought to an end by the monitor. Priority in the event of insolvency within 12 weeks of the moratorium does not, however, apply to debts crystallising as a result of early termination.  

Considerations for Directors

  • Will need to notify suppliers where continue to trade on credit terms.
  • Can rely on supply continuity to keep business going although this may be difficult in practice and suppliers will find excuses not to cooperate if they feel there is a material credit risk or breakdown in the relationship.
  • May be an offence to obtain or continue with a moratorium if no genuine prospect of rescuing the company.
  • Can still be pursued for wrongful trading, although it is now more unlikely that losses/liabilities incurred between 1 March 2020 and 30 September 2020 or 26 November 2020 and 30 June 2021 would form part of a claim.
  • Potentially commits an offence if there has been any concealment/dispensing of property, debts, documentation in the 12 months prior to a moratorium, other than in the ordinary course of business.