The coronavirus pandemic (COVID-19), an ongoing crisis, has affected, and still is affecting everyone around the world. From education, to the healthcare system and to businesses no matter how big or small, this crisis has caused heads of departments of all divisions to quickly make decisions for the best interest of everyone’s health and safety.

The sector of insolvency that is concerned with companies, has been heavily influenced by COVID-19, in which a new legislation has been introduced, Corporate Insolvency and Governance Act 2020 (‘CIGA’).

To provide background knowledge as to how and why this new legislation was introduced, on the 28th of March 2020, the UK Government announced that it would make amendments to suspend the wrongful trading provisions for a time within the Insolvency Act 1986. The Government also decided to introduce a moratorium to assist the rearrangements of companies in a time of financial difficulty and protection of their supplies to enable them to continue trading during the moratorium. As a result of this, the Corporate Insolvency and Governance Bill was laid in Parliament on the 20th May of 2020 and came into force as CIGA 2020 on the 26th of June 2020.

This resulted in the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 (the ‘first Regulations’) which came into force on the 29th of September 2020. This was introduced to extend the temporary provisions that was introduced by CIGA to mitigate the impacts of COVID-19. Temporary adjustments surrounding the limitations on the use of statutory demands and winding up petitions have been extended to the 31st of December 2020 and the relaxation of company annual general meeting requirements has been extended to the 30th December 2020. In summary the main areas in the corporate insolvency regime affected by this are as follows:

Statutory Demands

Statutory demands between the 1st of March 2020 and 31st of December 2020 cannot be relied upon to reinforce any petition presented to the court. Importantly this restriction on statutory demands still applies regardless of whether COVID-19 had any financial impact on a company or not.

Winding Up Petitions

Between the 27th of April 2020 and 31st of December 2020, creditors may not present a winding up petition against a company, without “reasonable grounds for believing” that it would be insolvent even if COVID-19 did not have a monetary impact on it. On the other hand, the court may only make a winding up order if the judge is content with the fact that the company would be believed to be insolvent even if COVID-19 did not have a monetary impact on it.

Wrongful Trading

Crucially, the temporary provision concerning the suspension of liability for wrongful trading is not being extended and therefore, automatically expired on the 30th September 2020.

Moratorium procedure

Additionally, short-term modifications to the use of certain types of contractual terms as well as modifications to the moratorium procedure of the Insolvency Act 1986 are extended to 30th March 2021.

In addition to the first Regulations being introduced, Corporate Insolvency and Governance Act 2020 (Coronavirus) (Early Termination of Certain Temporary Provisions) Regulations 2020 (the ‘second Regulations’), was introduced on the 1st of October 2020. The second Regulations extended the time restriction that was introduced by the first Regulations. The purpose of the second Regulations is to re-establish, for certain measures, the time restriction that was originally specified in CIGA. CIGA provides temporary provisions for the purposes of a moratorium under the Insolvency Act 1986. Those temporary provisions relax the conditions for obtaining a moratorium as well as modifying how it is to be monitored and extended. These temporary provisions must cease to have effect on the 30th of March 2021.

In turn, the intention of this change to insolvency is to minimise the increasing number of companies that may not be able to repay their debts.

We appreciate that this is a very difficult time and a complex area of law. If you are experiencing financial difficulties during this period or wish to pursue a debtor, please do not hesitate to contact us for any legal advice.