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Transport firms facing collapse in the wake of the Covid-19 pandemic have been thrown a lifeline in the form of a new law.

The Corporate Insolvency and Governance Act, passed last week, marks the most significant change to the UK’s corporate insolvency regime in more than 20 years.

Announcing the new law, the government’s Insolvency Service said it introduces “temporary easements to give distressed businesses the breathing space they need to get advice and seek a rescue".

It added: “It is vital to introduce the moratorium now to ensure that companies which are struggling as a direct result of the pandemic are given the opportunity to survive.”

The law introduces an extendable 20 working day period giving businesses protection from creditor action while they seek professional restructuring advice.

Businesses choosing this option must appoint a licensed insolvency practitioner, dubbed a Monitor, to oversee the moratorium.

The new law also extends the suspension of termination clauses when a company enters into an insolvency procedure, introduces a new restructuring plan that has the ability to bind creditors to it and provides temporary relief until 30 September 2020 from being subject to a winding up petition and from wrongful trading provisions where a business can demonstrate its difficulties arise from the impact of the COVID-19 pandemic.

Changes to company filing and meeting requirements have also been introduced which the Insolvency Service said will relieve the burden on businesses during the pandemic and allow them to focus their efforts on continuing to operate.

Earlier this month, the RHA warned that a survey of its members had revealed that 16% could be insolvent by the end of this month.

FSB national chair Mike Cherry said: “The measures will immediately go some way to mitigate some of the problems small businesses are facing, such as the relaxation of wrongful trading rules which will allow directors of struggling companies to continue trading without fear of legal repercussions.”