The Corporate Insolvency and Governance Act 2020 (“CIGA 2020”) introduced temporary measures which were designed to protect viable businesses from being forced into insolvency due to the restrictions on trading caused by the coronavirus pandemic.
Creditors were temporarily suspended from issuing statutory demands which would ordinarily be served on companies owing sums of more than £750. Additionally, restrictions were placed on presenting winding up petitions where coronavirus had a financial effect on the business and its ability to pay its debts.
These measures provided much needed protection to many businesses but expired on 30 September 2021. The Government has however now introduced new targeted measures for small businesses under the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (“the Regulations”), which amend CIGA 2020.
The Regulations provide that, from 1 October 2021 until 31 March 2022, a winding up petition can only be presented if:
- The debt or debts owed to the petitioning creditor has fallen due and are for a liquidated sum totalling at least £10,000 (an increase from £750);
- The debt does not concern rent or any other sum payable by a tenant under a ‘relevant business tenancy’ and is unpaid because of the financial effect of coronavirus;
- The creditor has delivered a written notice (containing the necessary information as set out in the Regulations) giving the debtor 21 days to put forward their proposals for repayment of the debt; and
- The debtor has not made a proposal for payment of the debt that is to the creditor’s satisfaction within 21 days, beginning the day the notice was delivered.
It is possible for a creditor to apply to the court for an order dispensing with the need to give notice, or give a lesser period of notice, but this is only likely to be granted in exceptional circumstances.
The most recent changes aim to strike a balance between allowing businesses to recover and enabling the market and creditors to return to ‘normal’. The Government acknowledges that, although trading restrictions have lifted, businesses still face challenges resulting from the coronavirus pandemic, including supply chain disruption and staff shortages due to isolation.
The legislative measures continue to constrain creditors’ ability to enforce the recovery of debts relating to commercial tenancies (which is consistent with the extension of the moratorium which protects commercial tenants from eviction until March 2022) and restrains creditors’ ability to enforce the recovery of relatively small debts. In relation to larger debts, the new measures allow debtors time for negotiations to reach suitable agreements where possible and/or seek advice in relation to restructuring and/or rescue procedures prior to winding up action. This particularly protects small businesses and provides valuable time for businesses to ‘trade their way back to financial health’, especially in sectors such as hospitality and tourism where demand has recently increased but such businesses still experience cash flow issues.
Nonetheless, in order to present a winding up petition, creditors no longer need to show that coronavirus has not had a financial effect on the debtor, nor that the debtor would have been indebted even if coronavirus had not had a financial effect. Therefore, if the outstanding sum totals £10,000 or more, creditors can now present a winding up petition against the debtor even if the coronavirus pandemic is cited as a reason for non-payment (provided that the other conditions listed above are satisfied). Consequently, despite creditors still being subject to restrictions, the limitations have eased and creditors are now able to take more action against indebted companies than was previously possible.
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