Governance bill in spotlight
The much heralded Corporate Governance and Insolvency Bill is expected to be enacted by the end of this month or early next. The restructuring industry, legal analysts, accountants and directors have been poring over the labyrinthine terms of the bill for several weeks, looking for the solutions that will help Scottish corporates avoid implosion.
Among its provisions, the bill provides breathing space via a moratorium; a restructuring plan; a tempering of creditors’ rights to help firms cope with the aftermath of the pandemic; and the easing of wrongful trading provisions that would have driven some directors to early insolvency.
Does the bill deliver potential solutions? Unfortunately, life is not that simple. Consider a couple of its key provisions. In the case of the moratorium, the monitor who is appointed (the insolvency practitioner) needs to be of the view that the moratorium, which is granted initially for 20 business days with the possibility of extension, is likely to result in the rescue of the company as a going concern. To reach that conclusion, businesses will have to expend time and money before the moratorium can even begin. The business would need to engage a prospective monitor at an early stage in distress and have adequate time and information available to enable that investigative process to take place before a crisis hits.
The short period for easing of wrongful trading provisions is unquestionably of assistance to directors, although it does not absolve them of their duties. It alleviates the spectre of personal liability while they continue to battle the health crisis and enables them to make decisions aimed at securing the longer term future of their businesses, without fear that they could find themselves personally liable should those plans ultimately not be successful. This aspect of the bill does provide some practical comfort. The mere fact that it is even included has already led some directors to take a more balanced view than they might otherwise have felt able to adopt.
Much of the bill is well intentioned but the complex nature of the provisions, the short timescales and lack of further guidance – whether by legislation or from the relevant regulatory bodies – on how a number of these provisions will operate means its extent of use may be limited. That said, there is provision for easier legislative change than usual.
However, on 12 June the House of Lords select committee published a report finding a number of constitutional issues in the bill, such as the permanent nature of certain provisions – including the moratorium – and the retrospective nature of others, for example the presumption in favour of directors around wrongful trading. On that basis, the bill could be quite different in its impact by enactment.
● Yvonne Brady is head of restructuring and business advisory at Shepherd and Wedderburn