UK government prepares for end of temporary insolvency measures

Out-Law News | 29 Sep 2021 | 1:42 pm | 2 min. read

The UK government has introduced legislation designed to support small businesses ahead of the end of restrictions on winding up petitions on 30 September 2021.

The government introduced the Corporate Insolvency and Governance Act 2020 (CIGA) in June 2020, restricting creditors from serving statutory demands and presenting winding up petitions for debts related to coronavirus. The restrictions were originally in place to 30 September 2020, but were repeatedly extended to a final date of 30 September 2021.

Ahead of the restrictions finally coming to an end, the government has introduced the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021. The regulations are aimed at giving smaller companies more time to trade before creditors can take action to wind them up.

Although there will no longer be restrictions on presenting statutory demands, as under CIGA, from 1 October 2021 until 31 March 2022, the threshold for presenting a winding up petition will be increased from £750 to £10,000. It will be possible for more than one creditor with a total aggregate debt of £10,000 or more to present a winding up petition.

Creditors must write to a company asking them to put forward their proposals for repaying a debt within 21 days. If the company does not put forward proposals to the creditor’s satisfaction, then the creditor can present a winding up petition.

A creditor can apply to court for permission not to write to a company or to give a company less than 21 days to put forward repayment proposals.

The winding up petition must contain a statement confirming that the regulations have been complied with.

However, the regulations do not amend the sections of the Insolvency Act 1986 dealing with the disposition of property between the presentation of a winding up petition and the date of the winding up order. This means that from 1 October 2021, banks will be likely to consider freezing company bank accounts on learning of a winding up position.

The provisions suspending liability for wrongful trading expired on 30 June 2021, giving creditors comfort from the fact that directors should only continue to trade providing that they are not worsening the financial position of the company

Insolvency law expert Joanne Gillies of Pinsent Masons, the law firm behind Out-Law, said: “It will be interesting to see how the courts deal with the requirement that creditors must give debtors a further 21 days for repayment proposals before they can present a winding up petition.

“Particularly if there is evidence of assets being dissipated, a creditor may not be in a position to wait 21 days for the debtor’s proposals, and a provisional liquidator appointment will be required immediately,” Gillies said.

“Helpfully, judges have discretion to waive this condition but it remains to be seen what criteria they apply when deciding whether to do so,” Gillies said.

The regulations also affect commercial landlords, who have been effectively stripped of powers to take action if rent has not been paid through the pandemic.

In England, commercial landlords are currently prevented from forfeiting leases owing to non-payment of rent and are restricted from exercising commercial rent arrears recovery until 25 March 2022. In Scotland, the irritancy notice period under commercial leases is extended to 14 weeks until 31 March 2022.

The regulations prevent a landlord from presenting a winding up petition in respect of “rent or any sum or other payment that a tenant is liable to pay” under a business tenancy and which is unpaid by reason of a financial effect of coronavirus until 31 March 2022.

In June, the government announced that it is planning to legislate to ringfence Covid-related rent arrears that have accrued as a result of trading restrictions being placed on businesses and to introduce a system of binding arbitration for landlords and tenants who cannot come to a negotiated settlement in terms of payment.