Financial services and the UK Insolvency Bill

The Corporate Insolvency and Governance Bill has been introduced to Parliament. MPs will consider all stages of the Bill on 3 June 2020 and it will then progress to the House of Lords. The Bill is subject to the fast-track procedure as it aims to give companies flexibility and breathing space to continue trading in the COVID-19 crisis rather than entering into insolvency.

In addition to the crisis-related measures, there are three key areas of the Bill which will affect financial services companies and their arrangements with customers:

• moratorium: the ability for certain “eligible companies” to obtain a moratorium giving the company a payment holiday and various other protections from creditors;
• arrangements and reconstructions for companies in financial difficulty; and
• the extension of existing measures that prohibit termination clauses that engage on insolvency or are based on past breaches of contract and require contracted suppliers to continue to supply, even where there are pre-insolvency arrears. These provisions are referred to as “termination clauses in supply contracts”.

Does this mean that a bank or a counterparty is prevented from exercising rights to demand payment or to terminate a contract and exercise netting or set-off rights or enforce its security?

No. There are broad exclusions for certain types of financial services company and financial services contracts and financial collateral arrangements.

This means that many financial services firms including insurers, banks, investment firms, payment institutions, electronic money issuers, securitisation companies, parties to capital markets arrangements, public-private partnership project companies and participants in financial market infrastructure will be excluded from the scope of the moratorium altogether. The result is that a counterparty will be able to continue to enforce agreements and security on a default.

Our briefing considers the new provisions and the exclusions for financial services firms and contracts in more detail.