Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Insolvency definition

What does Insolvency mean? In practice, insolvency describes a financial state where a debtor cannot meet liabilities when due, triggering remedies such as administration, liquidation or bankruptcy and informing directors’ duties and avoidance claims. For companies in England & Wales, Scotland and Northern Ireland, the Insolvency Act 1986, s 123 sets two alternative tests: - Cash‑flow insolvency: an inability to pay debts as they fall due. The inquiry is practical and forward‑looking, not confined to today’s bills (Re Patrick & Lyon Ltd [1933] Ch 786; BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28). - Balance‑sheet insolvency: liabilities (including contingent and prospective liabilities) exceed assets on...

Ipso facto restrictions under CIGA 2020: IA 1986 s 233B explained, comparison with s 233A, safeguards, exemptions, moratorium priority and supplier strategies

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

Background to the Corporate Insolvency and Governance Act 2020 (CIGA 2020)

Driven by the coronavirus (COVID-19) crisis and the need to cushion businesses from the impact of lockdown measures, the Corporate Insolvency and Governance Bill gained Royal Assent on 25 June 2020, becoming CIGA 2020. It built on the government’s 2016 consultation on reforming the UK’s insolvency framework, with the official response issued on 26 August 2018 (see News Analysis: Exploring the government’s response to the insolvency and corporate governance consultation). Among its changes, CIGA 2020 inserted fresh provisions into the Insolvency Act 1986 (IA 1986) to protect continuity of essential supplies and to curb insolvency‑triggered termination rights in contracts (the so-called ‘Ipso facto’ clauses). For a summary of CIGA 2020, see News Analysis: Corporate Insolvency and Governance Act 2020.

What are ipso facto clauses?

Where a company enters an insolvency process, suppliers frequently try to strengthen their position by threatening to stop providing goods or services. They may rely on contractual terms allowing termination due to insolvency or a weakened financial condition of the company...

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Web page updated on 21/05/2026

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