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UK Insolvency Reforms and Derivatives: Impact of the prohibition on the operation of termination and certain other provisions

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22 May 2020

The UK Corporate Insolvency and Governance Bill (CIGB) was introduced to Parliament on 20 May 2020 and proposes to support the real economy by introducing certain reforms to give companies increased flexibility to reduce their chances of insolvency during stressed market conditions resulting from the Covid-19 pandemic and beyond.

This bulletin focuses on the prohibition on the operation of certain termination and other provisions (so called ipso facto clauses) and the treatment of those provisions in the context of the derivatives markets and is not a full and detailed analysis of the legislation (which may still be subject to change).

CIGB proposes to introduce a number of insolvency measures, including a moratorium to allow companies breathing space from creditor action to explore options for rescue. Whilst the impact of the company moratorium on the enforceability of security financial collateral arrangements entered into in connection with derivatives transactions is a relevant consideration, we note that these arrangements are able to benefit from an exemption. For a discussion of the wider proposals (including the company moratorium), please refer to our more comprehensive bulletin on CIGB.