Brave New World: What Every Commercial Practitioner Needs To Know About The New Corporate Insolvency Law - Jeremy Richmond QC, Nicola Allsop & Emily Saunderson

Published date31 July 2020
Subject MatterFinance and Banking, Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Debt Capital Markets, Financial Services, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Contracts and Commercial Law
Law FirmQuadrant Chambers
AuthorMr Jeremy Richmond QC, Nicola Allsop and Emily Saunderson



On 26 June 2020 the UK Corporate Insolvency and Governance Act 2020 ("CIGA") entered into force. It represents a radical change in English insolvency law in that (among other things):

  • It restricts the rights of a party to terminate a contract for the supply of goods and services in the event of counterparty insolvency;
  • It provides for the directors of an insolvent company to place it into a new moratorium procedure thereby prohibiting proceedings against the company and its assets and prohibiting any steps to "crystallise" floating charges (including, arguably, sub-freight liens). Moreover, during the moratorium the directors remain in control of the company.
  • It temporarily suspends the efficacy and potency of statutory demands, and restricts the circumstances in which an insolvent counterparty can be wound up.

It is not an exaggeration to say that the new provisions are probably the most significant change in English insolvency laws for commercial lawyers in a generation. In this brief article we seek to highlight only some of the key points that are immediately relevant to commercial lawyers. We anticipate more detailed articles on the provisions of the Act will appear in a Quadrant Chambers special edition of Cross-Border Insolvency and International Trade Law in September 2020.

Termination of contracts in the event of insolvency

Four major points stand out as having a potentially immediate impact on commercial parties.

Firstly, "ipso facto" clauses are deprived of their efficacy. Such clauses are commonplace in all sorts of English law commercial contracts. They typically provide for the automatic termination or right to terminate upon counterparty insolvency. The new Act inserts a fresh provision into the Insolvency Act 1986 (section 233B(3)(a)-(b)). It provides that any term contained in a "contract for the supply of goods and services" shall cease to have effect if it provides, upon a counterparty entering into "an insolvency procedure," for:

  • the termination of the contract or
  • an entitlement to terminate the contract or
  • "any other thing to take place"

This is a game-changing provision. Unusually for an English insolvency law, it changes the substantive terms of the contract freely agreed between the parties. The final limb - viz. "any other thing to take place" - is potentially very wide in its ambit and we anticipate it will be subject to significant refinement as the Courts and arbitrators come to grapple with its scope.

Secondly, any right of termination "under the provision of the contract" arising before the commencement of any insolvency procedure may not be exercised, irrespective of whether that right arose from an insolvency-related matter or not (section 233B). It is unclear whether termination arising from the renunciation of the contract by...

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