The CIGA reformed insolvency law. It includes temporary changes to assist companies during the Coronavirus (COVID-19) pandemic. More importantly, it introduces new restructuring tools and protection for companies undergoing the insolvency or restructuring process.
The suspension of creditors’ right to take certain actions (known as a 'moratorium')
The moratorium acts as a payment holiday for specific pre- and post-moratorium debts that fall due during this period. This provides companies with breathing space to develop a business rescue plan by temporarily relieving them from the pressure of creditors.
During this period, directors will remain in charge of the management of the company but will be supervised by a ‘monitor’ (a licensed insolvency practitioner). The monitor is responsible for ensuring that the creditors’ interests are protected. Certain transactions, eg the grant of new security, require the monitor’s approval.
New restructuring plan
The restructuring plan introduced is a new way for companies in financial difficulties to reach a compromise with its creditors. It is similar to a Scheme of Arrangement, except it’s binding on all creditors including those that voted against it (known as a ‘cram down’).
The prohibition on the enforcement of termination clauses in supply contracts
Suppliers aren’t allowed to end their contracts on the basis that the other party has entered into a formal insolvency procedure, the new moratorium or the new restructuring plan process.
Furthermore, once a company has entered into an insolvency procedure, suppliers can’t exercise their termination rights that arose from events which took place before the start of the insolvency process.
Suppliers can only terminate the contract if they obtained:
Some supply contracts are excluded from the prohibition. Small companies are also temporarily exempt from the rule until 30 September 2020.