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UK Corporate Insolvency and Governance Act: effects on ipso facto clauses

This article provides a high-level overview of the UK’s ipso facto regime prior to the changes made by the Corporate Insolvency and Governance Act 2020 (CIGA), the reforms to this regime under the new legislation and the practical effects of such reform, highlighting some potential issues with the new legislation where clarificatory guidance would be welcome. 

Key points:

  • Due to the carve-out for financial contracts, a distressed company will not be able to prevent financial creditors from terminating or accelerating loans on the commencement of an insolvency procedure and so discussions should be had with such creditors before the insolvency procedure is commenced. 
  • It is unclear why the new regime should apply where a company is in liquidation.
  • A system more akin to that included in s 365 of the US Bankruptcy Code could have facilitated a fairer system. 

This article first appeared in the September issue of Butterworths Journal of International Banking and Financial Law.