On Amendments To Certain Provisions of the Insolvency Act 2011

By James Montado, Partner of ISOLAS LLP

Insolvency (Amendment) Bill 2020

As part of its ongoing efforts to assist business during the COVID-19 pandemic, Her Majesty’s Government of Gibraltar (HMGOG) had published a Bill to amend certain provisions of the Insolvency Act 2011. The Insolvency (Amendment) Bill 2020 seeks to introduce, among other measures discussed below, a temporary moratorium period during which the ability of hostile creditors to place companies (and any other form of legal entity, sole trader or partnership) into Administration or Liquidation are suspended. It also introduces measures to protect directors (and their equivalents in other forms of legal entities), and the decision they make during the COVID-19 pandemic, to alleviate concerns regarding insolvent trading and other statutory remedies for which personal liability may arise.

Who do the measures apply to?

The amendments introduced by the Bill apply to virtually all forms of corporate and non-corporate entities. These include companies, partnerships and sole traders who are licensed or authorised in Gibraltar under the Fair Trading Act or other act (such as the Financial Services Act 2019).

What are the aims of the new measures?

The new measures, which are due to be implemented in the near future, will introduce a moratorium period which will commence and end by a legal notice published by HMGoG. It is expected that the period will commence simultaneously with the introduction of the amendment and will likely last until such time as some sort of economic normality is restored, although no set termination date is set.

Broadly, the new measures contained in the Bill can be grouped into either i) measures designed to prevent the company from entering an insolvency process during the moratorium period and ii) measures designed to protect directors (and equivalents) from personal liability for decisions taken during the moratorium period.

The new measures contained in the Bill form part of a wider package of measures introduced by HMGoG during the COVID-19 pandemic and, ultimately, recognise the unprecedented economic challenges which the wider COVID-19 measures will have on business (which form the basis of ‘Relevant Circumstances’ as defined in the Bill). The measures are therefore designed to allow otherwise healthy businesses to continue in the current economic circumstances where insolvency legislation (and hostile creditors) may otherwise ordinarily require them to enter into an insolvency process.

What are the new measures?

Except with the consent of the company:

- No steps may be taken to enforce any security interest over the company’s assets

- No right of forfeiture by re-entry may be exercised in relation to premises let to the company

- No steps may be taken to repossess assets in the possession of the company which have been supplied to the company under either a hire purchase, conditional sale or chattel leasing agreement or which are subject to a retention of title agreement

- Holders of a qualifying floating charge in respect of a company’s property may not apply to appoint an administrator  and may not seek to appoint an administrative receiver without the company’s consent (due the general restriction on the enforcement of any security interests over assets within a company’s control without the company’s consent)

- Creditors of a company may not apply to Court to place the company into Administration. However the ability for the company itself, its directors and others to apply for Administration remains

- Creditors, and interestingly, directors of the company may not apply to Court to place a company into Liquidation. -  [Whilst the reasons for the restriction on the application of creditors is clear, the restriction in respect of directors is a measure which could be aimed to protect directors who may be uncomfortable with allowing companies to continue to trade especially in circumstances where those directors begin to owe duties to creditors. The measure would prevent a single director from liquidating a company where the remainder of the board of directors does not wish to do so and who collectively continue to have the ability to place a company into liquidation by applying on behalf of the company itself]

- Creditors may no longer service statutory demands. -  [This in essence eliminates the most common form of establishing, by creditors, that a company is unable to pay its debts as and when they fall due which is one of the relevant tests required to be met before a company is placed into liquidation by the Court]

- In respect of Unfair Preferences (transactions which have the effect of putting a creditor into a position which is better than he would have been in had the company gone into liquidation save where those transactions were in the ordinary course of business), a presumption is introduced that the economic and market conditions together with the restrictions on trade brought about by the COVID-19 pandemic constitute ‘the ordinary course of trade’ and that any bona fide commercial transaction entered into during the moratorium is presumed to take place in the ordinary course of business. - [This allows businesses to enter into such arrangements or to compromise debts with such select creditors as may be deemed necessary to allow them to continue to trade notwithstanding that such an arrangement would create, in ordinary circumstances, an Unfair Preference. Whilst the presumption is rebuttable (and can therefore be disproved), the provision ought to alleviate the concern of both creditors and directors (and their equivalents) that any arrangements which may be entered into could be set aside.]

- The presumption that any floating charge created in favour of  a ‘connected person’[1] is presumed to be an insolvency transaction (i.e. one that causes the company to become insolvent or was entered into at a time that the company was insolvent) and is liable to be voided is disapplied for the duration of the moratorium

- Removes the liability of directors and others against ‘malpractice actions’ within the context of Part 10 of the Insolvency Act by preventing i) summary remedy against delinquent officers ii) fraudulent trading and iii) insolvent trading  action being commenced where the only grounds  for the action are  i) that the company continued to trade or entered into a transaction in the ordinary course of business, and/or ii) did not appoint a liquidator or administrator, even though the company was or may have been insolvent but only where the said insolvency was by reason of the ‘Relevant Circumstances’[2] or a reduced demand for its good or services. - [These measures go a long way to protect directors by providing them with a framework through which they would be relieved from likely personal liability in circumstances where allowing a company to continue to trade, and possibly incur greater liabilities, could give rise to such actions]

- In relation to bankruptcy of individuals (to cover sole traders), equivalent restrictions preventing creditors from applying for a bankruptcy order have been introduced together with the equivalent measures to protect individuals from ‘malpractice’ and unfair trading provisions

The above provisions have been extended, with such necessary modifications to bankruptcy, unregistered companies as well to the Other Relevant Entities.


The measures proposed by the Bill are certainly bold and appear to strike a balance between shielding companies and directors from actions by liquidators and creditors at the expense of creditors’ ability to recover debts due on the one part and allowing otherwise healthy companies and entities to survive the economic challenges of the COVID-19 pandemic by providing them with a means to ‘trade out’ of economic difficulty on the other part. The measures also protect and relieve directors (and their equivalents) of certain duties and allow them to act in ways which, provided they remain in the best interest of the company, could ordinarily expose them to liability and/or would cause a company to enter into an insolvency process. Whilst it is recognised that these measures appear to favour a company over its creditors they must be seen within the wider context of the COVID-19 pandemic and, particularly, i) the reality of the present economic circumstances, ii) the overall restrictions imposed by HMGG on the ability of businesses to trade and iii) recognition that creditors overall may benefit in the long term from these measures by allowing business to survive rather than entering into an insolvency process from which creditors may not recover a significant (or any) part of their debt. Of course, it is also noteworthy that creditors (at least those in Gibraltar) whose own solvency positions may be adversely affected due to their inability to realise any security interests or assets from their debtors are themselves protected by these same measures. Overall these measures must be viewed within the context of their ultimate goal this being that they seek to facilitate the return of economic normality once the pandemic is over; they should therefore be welcomed for their intended long-term effects.

Practically, and notwithstanding these measures, directors (and their equivalents) would still be best advised to record, either in board minutes or otherwise, the reasons for the decisions they are taking especially where they would seek to later rely on the measures contained in the Bill. Some measures limit themselves to introducing rebuttable presumptions and therefore contemporary records of the rationale and circumstances behind such decisions can only serve to protect companies and their directors should the need ever arise. 


James Montado is a Partner of ISOLAS LLP with a substantial insolvency practice especially within the context of regulated entities. He has advised and acted for liquidators, administrators, creditors, secured creditors and foreign insolvency funds.