The Corporate Insolvency and Governance Act 2020 is far-reaching with its implications extending to pension schemes. Pension scheme employers and trustees should ensure that they are familiar with the provisions of the Act, and the potential impact that they could have on schemes, employers and savers.


The Act received royal assent on Thursday 25 June. The Act passed through Parliament very quickly, so that its provisions can be used by companies experiencing financial difficulty as a result of the COVID-19 pandemic. The Act contains:

  • temporary provisions to assist businesses in navigating through COVID-19; and
  • permanent, long-term provisions to provide additional insolvency measures, and increase the likelihood of more companies being successfully rescued as a going concern.

The temporary provisions will apply until 30 September 2020, and broadly include:

  • the suspension of the wrongful trading rules;
  • the suspension of statutory demands and the issuance of winding-up petitions; and
  • the relaxation of certain corporate governance requirements.

In addition to this, the Act contains several permanent provisions that represent a significant change to UK insolvency law. These include:

  • the introduction of a free-standing moratorium;
  • the introduction of a new restructuring plan; and
  • the introduction of a statutory override in respect of insolvency termination provisions (ipso facto clauses).

Importantly, from a pensions perspective, neither the new moratorium nor the restructuring plan will be qualifying insolvency events for the purposes of a Pension Protection Fund ("PPF") assessment period, although the Act was amended to require the involvement of the PPF and the Pensions Regulator when these new measures are used. 

Temporary Provisions

Suspension of wrongful trading rules

Wrongful trading provisions under insolvency law allow a Court to impose personal liability for the company's debts on  a director of a company which has gone into administration or liquidation. The provisions apply where the director knew or ought to have concluded that there was not reasonable prospect of the company avoiding entering such a process, but did not take every step to minimise the loss to creditors.

The Act temporarily suspends the usual application of the wrongful trading rules.  In particular, from 1 March 2020 to 30 September 2020, the Court is to assume that a director is not responsible for any worsening of the financial position of a company or its creditors. 

Regardless of this relaxation, the Act does not suspend the fraudulent trading or director disqualification regimes, and directors are still expected to comply with their fiduciary duties. This easement is simply to give directors some flexibility to respond COVID-19 and avoid mass insolvencies, driven by concerns to minimise loss by filing early.

Suspension of statutory demands and winding-up petitions

The Act prohibits the issue of a winding-up petition between 27 April 2020 and 30 September 2020 unless a creditor has reasonable grounds to believe that the company that they are seeking to wind up would not have been able to pay its debt anyway, regardless of the impact that COVID-19 has had (i.e. the company has not been financially affected by COVID-19). There has been no guidance given on what financial effect means, but it is likely to be a relatively low threshold, with most businesses having been in some way affected by COVID-19. 

The Act also provides that no statutory demand may be used between 1 March 2020 and 30 September 2020 to found the presentation of a winding-up petition filed on or after 27 April 2020.

Pension trustees will generally be very cautious about issuing a petition. However, where there has been a failure to pay contributions and trustees have no other leverage then the fact that this particular tool may not be available could have an impact on their negotiations.

Relaxation of corporate governance requirements

Until 30 September 2020, companies will have more flexibility around governance, with the relaxation of certain company law provisions. The aim of this is to enable businesses to be able to take steps to adapt in the face of the current COVID-19 pandemic, and to comply with Government rules around social distancing.

These easements include:

  • Annual General Meetings ("AGMs") being permitted to be held virtually; and
  • deadlines for filing certain documents, such as Accounts, with Companies House being extended.

Permanent Provisions

Standalone moratorium

One of the primary provisions of the Act is the introduction of a new free-standing moratorium. The moratorium will allow struggling companies to obtain some short-term relief when faced with mounting debts. The moratorium period lasts for 20 business days initially (although this period can be extended), and during that time a struggling company is protected from legal action  and granted payment holidays on many forms of debt.  However, there are a number of pre-moratorium debts which are excluded from this payment holiday and must continue to be paid during the moratorium. These include wages or salaries arising under a contract of employment, which in turn includes "a contribution to an occupational pension scheme". It is unclear what payments to a pension scheme would be caught by "a contribution to an occupational pension scheme". For example, it is not clear whether deficit repair contributions are covered. We would hope that there will be some guidance on this imminently.

One point that is clear is that the moratorium will not be a qualifying insolvency event under the Pensions Act 2004 and, as such, schemes whose sponsoring employers are making use of the moratorium will not trigger a PPF assessment period.

In response to concerns raised by the pensions industry that this would mean that the moratorium would detrimentally impact pension scheme trustees, the proposed Act was amended before it was enacted  to require that both the Pensions Regulator and the PPF must be notified of a moratorium. In addition, if a company is an employer of an eligible pension scheme and the trustee is a creditor of that company, the PPF will be able to challenge a moratorium on behalf of the trustee in accordance with insolvency rules.

Restructuring plan

The Act also introduces a new restructuring plan process where, if a company has encountered, or is likely to encounter, financial difficulties that are affecting, or could affect its ability to carry on business as a going concern, it can agree a compromise with its creditors, with the aim of helping it to continue as a going concern.

The Court can sanction a restructuring plan provided that the plan would not leave any of the dissenting classes of creditors worse off than if the company had chosen a relevant alternative method. As with the new moratorium, the new restructuring plan will not be a qualifying insolvency event for PPF purposes, meaning that a PPF assessment period will not be triggered by a sponsoring employer to a pension scheme making use of the restructuring plan mechanism.

As with the standalone moratorium, there were some concerns raised about the impact this could have on pension schemes trustees as creditors, as well as the conditions that need to be met before a restructuring plan will be approved by the Court. As a result, several amendments were made to the Act during its journey through Parliament. Any restructuring plan must be notified to Pensions Regulator and the PPF if certain conditions are met. In addition, where a compromise or arrangement is proposed in respect of a company which is a sponsoring employer to a pension scheme, the Act makes provision for Regulations to be passed which would allow the PPF to exercise the trustee's rights as creditor.  It remains to be seen if any secondary Regulations will be brought forward.

Ipso facto clauses

The Act introduces a statutory override which will mean that a supplier of goods or services cannot terminate a contract simply because a company becomes subject to a relevant insolvency procedure. This means that suppliers will generally have to continue to comply with their contracts with an insolvent employer provided that they continue to be paid for the services provided during the relevant insolvency period.  While there are some exemptions, for example, for small suppliers, this is a far-reaching reform and a reform which brings the UK into line with a number of other sophisticated insolvency jurisdictions.


We recognise that the Act could be useful for those businesses who have experienced cash flow problems as a result of COVID-19 but time will tell whether the new measures and flexibilities will actually be used by struggling businesses.

From a pensions perspective, while the Act has been amended to provide some protection to pension schemes, it remains to be seen if this protection is sufficient. We expect that both the Pensions Regulator and the PPF will be actively engaged in the early adoption of the new restructuring mechanisms.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.