A number of insolvency measures have been introduced in recent months in order to offset the immediate financial impact of the COVID-19 pandemic.

The COVID-19 pandemic has undoubtedly had a significant impact on businesses – although the number of corporate insolvencies have fallen by half compared to June last year according to official government statistics, many experts believe the latest figures do not reflect the severity of the situation and increasing financial pressures facing many UK businesses, with many experts anticipating a spike in both personal and corporate insolvencies between October and December, once government initiatives are withdrawn.

In an attempt to ensure businesses and individuals maximise their chances of financial survival going forward, the Corporate Insolvency and Governance Bill 2020 has introduced a number of landmark insolvency measures and reforms, including significant changes to restructuring, and termination of contracts, which may prove crucial for business recovery in the short-medium term. Here, we consider both temporary and permanent measures that consider both businesses and individuals:

Covid-19 – Temporary measures


In normal circumstances, a director can become liable for company debts if they have continued trading a business which is unable to pay debts and the debts have increased as a result of their actions. As a result of the temporary relaxation of the wrongful trading rules, company directors will be able to continue to pay staff and suppliers even if there are fears that the company’s financial position could worsen to the point of being insolvent.

The new legislation is effective retrospectively from 1 March 2020.


Statutory demands served between 1 March 2020 and 30 September 2020 cannot form the basis of a winding-up petition presented at any point after 27 April 2020.

Therefore, no winding up petition can be ordered unless the creditor has grounds to believe the inability to pay would have arisen regardless of the financial impact of COVID-19 on the company, or that COVID-19 has had no financial impact on the company.


This temporary measure relaxes the moratorium eligibility requirements, meaning companies that have been subject to an insolvency process (Company Voluntary Arrangement (CVA) or Administration) in the previous 12 months will be eligible for a moratorium. This provides protection from creditor pressure whilst a rescue plan is formulated.


Emergency legislation introduced in March means that tenants in social or private rented accommodation will have legal protection from eviction until 30th September.

Covid-19 – Permanent measures


A new moratorium for companies has been fast-tracked in response to the COVID-19 pandemic. The moratorium provides companies with breathing space from creditor action, giving more time to explore restructuring options. Directors remain in control of the day to day running of their business, whilst an insolvency practitioner becomes a monitor, overseeing the affairs of the company.

This moratorium provides 20 business days protection from creditor action which can be extended for another 20 business days. With court or creditor consent, it can be extended up to 12 months. As companies emerge from a period of restricted trading, this breathing space may be vital in enabling business recovery.


The introduction of this measure will prevent contracts between supplier and customers being automatically terminated in the event of an insolvency.

Contracts for the supply of goods and services usually contain a termination clause that automatically terminates the contract, or allows the supplier to terminate the contract, if a customer becomes insolvent.

Co-operation of suppliers though, is key to the successful turn-around of a distressed business. For this reason, the government is aiming to prevent terminations of contracts in order to help companies trade through financial distress.


The restructuring plan follows the existing ‘scheme of arrangement’ model, which supports viable companies struggling with debt obligations to restructure. Under a new procedure, the reform allows the court to bind creditors to a restructuring plan if it is fair and in the interests of creditors. Whilst creditors vote on the plan, the court can impose it on dissenting creditors provided that the necessary conditions are met.

Early intervention is paramount

As ever, in times of difficulty, early intervention is paramount. Although the aforementioned government initiatives have been a welcome intervention for many businesses during the crisis, we would always recommend seeking professional advice to assure long-term survival and implement a strategic plan that is commercially viable.

If you have any queries, please don’t hesitate to get in touch with a member of our dedicated Business Recovery and Insolvency team – we’re here to help.