Financial Services Exemptions in UK Insolvency and Governance Bill

Shearman & Sterling LLP

Shearman & Sterling LLP

The U.K. Government intends to exempt financial services firms from certain provisions of the new U.K. Corporate Governance and Insolvency Bill. The Bill, announced on March 28, 2020, will amend aspects of the U.K. insolvency regime (as set out under the Insolvency Act 1986) in light of the financial difficulties faced by many businesses as a result of the COVID-19 pandemic. The Bill also includes provisions for companies’ annual general meetings and filing requirements during the COVID-19 crisis.

The Bill’s insolvency-related measures include:

  • A new moratorium during which no legal action can be taken without leave of the court while the company in question seeks options for financial rescue or restructuring;
  • Suspension of wrongful trading liability for directors (which, if the Bill is passed, will exempt directors from legal action for wrongful trading with retrospective effect from March 1, 2020); and
  • Suspension of the right for suppliers to enforce contractual termination clauses in the event of a company entering insolvency or restructuring proceedings.

The FCA has announced that these measures are not expected to be available for banks, investment firms, insurers, payment and e-money institutions and certain market infrastructure bodies, nor will it apply to close-out netting provisions or certain protected kinds of contracts, such as those in clearing systems. Firms that safeguard client assets are not expected to be able to benefit from the company moratorium or temporary suspension of wrongful trading provisions.

The Bill does set out a new Restructuring Plan, which is expected to be available to financial services firms. Certain of the Bill’s insolvency-related provisions are also expected to be available to financial services firms, including: (i) a temporary suspension of statutory demands and winding-up petitions being filed against companies where unpaid debt is due to coronavirus; (ii) permission for companies to hold AGMs or general meetings other than by a public gathering, even where this conflicts with their company constitution; and (iii) further extensions to Companies House filing deadlines.

View the FCA's announcement on insolvency regime exemptions for financial services firms.

You may wish to view our note, “COVID-19 Changes Announced to UK Insolvency Law and on AGMs”.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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