Banks, Insurers Excluded From Gov't Insolvency Safeguards

By Najiyya Budaly
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our daily newsletters. Signing up for any of our section newsletters will opt you in to the daily Coronavirus briefing.

Sign up for our Financial Services UK newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!



Law360, London (May 15, 2020, 3:04 PM BST) -- Banks, insurers and investment companies will not be included in government measures designed to help British businesses avoid insolvency during the coronavirus crisis, the Financial Conduct Authority has said, as it seeks to provide legal certainty to the financial market.

The City watchdog said Thursday that financial institutions, including payment services and e-money businesses, will not be able to benefit from measures that are expected to be included in the government's Corporate Insolvency and Governance Bill.

Business Secretary Alok Sharma announced insolvency rules in March to help businesses hit by the pandemic, which are expected to be included in the proposed bill. The measures include halting legal action against a company that falls into insolvency amid the COVID-19 crisis.

But the FCA confirmed on Thursday that the safeguards will not apply to banks, insurers and other finance companies.

"These provisions will help to ensure that the U.K.'s existing special insolvency regimes for financial sector firms remain effective, and that financial market participants have the legal certainty so that financial markets function effectively," the regulator said of the proposed bill.

The proposed bill is also intended to prevent suppliers from withholding supplies from an insolvent company in a way that will jeopardize its efforts to save itself.

And the measures propose to temporarily exempt directors from personal liability if they continue to trade during the crisis if there is a risk of future insolvency — meaning that liquidators cannot take action over losses to creditors for continued trading.

But financial services companies are expected to benefit from some measures under the bill, the watchdog said.

Struggling banks and insurers will temporarily be exempt from winding-up proceedings when their unpaid debt is the result of the coronavirus crisis. And finance companies can hold  virtual annual general meetings, even if they are under a legal duty under corporate and insolvency rules to do this in person.

The bill, which is sponsored by the Department for Business, Energy and Industrial Strategy, is due to begin its passage through Parliament shortly.

--Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

View comments

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Beta
Ask a question!