Protection From Creditor Enforcement Extended Until 30 September 2021

At the time of writing, Coronavirus statistics were looking fairly positive. Although hospital admissions have been rising day by day, the increase in Covid cases is being met by a wall of vaccinated people which has so far prevented the NHS from being overwhelmed.  However, there is news that the coming winter is likely to be a tough one, not because of Covid, but due to the uptick in flu numbers.  Acknowledging that as a country (and a planet) significant battles against the pandemic have been won but the war is far from over, the government has extended protection against statutory demands and winding up petitions being brought against businesses affected by Coronavirus until 30 September 2021.  The relaxation in conditions for a company to enter a Part A1 moratorium also continues until 30 September 2021 (although this was already extended in March).

As with the extension of rent-arrears related forfeiture and rent-arrears recovery under Commercial Rent Arrears Recovery (CRAR), the news is great for debtors, creditors are not left in such a rosy position. 

What is the law behind the Coronavirus-related creditor enforcement protection?

To help battling businesses survive the ramifications of the first lockdown, in June 2020, the government amended insolvency laws via the Corporate Insolvency and Governance Act 2020 (CIGA 2020).

CIGA 2020 was quickly pushed through Parliament and amended insolvency legislation to provide more favourable conditions to struggling companies throughout the Coronavirus pandemic.

The Act provided for:

  • Some companies, in certain circumstances, to gain a moratorium for 20 business days (this could be extended), giving them protection from creditors and allowing them to delay paying certain debts which fell due before and during the moratorium.
  • The creation of a Restructuring Plan, which if approved by the Court, would mean some creditors would have to accept revised terms relating to debts owed.
  • Prohibition on issuing a wind-up petition based on statutory demands.
  • Prohibition on presenting winding-up petitions or making winding-up orders if the evidence showed that if it were not for the pandemic, the circumstances surrounding the petition or order would not exist.
  • Prohibition on terminating a supply contract if the reason for doing so is due to one of the receiving parties undergoing an insolvency process.

This is only a small sample of what CIGA 2020 covers and it is beyond the scope of this article to go into further detail.  In October 2020, certain provisions of the Act were extended, some until 30 December and others to 30 March 2021.  The prohibition of winding-up orders and statutory demands was further extended until June 2021 and now to the end of September.

When can a winding-up petition be presented?

Until 30 September 2021 (and perhaps beyond), a creditor cannot present a winding-up petition based on a statutory demand served from1 March 2020 to 30 September 2021.  Furthermore, until September 2021, a winding-up petition can only be presented if the creditor can satisfy the following test:

  1. The Coronavirus pandemic has not had a significant bearing on the debtor’s organisation; or
  2. The grounds for the petition would have applied even if the company had not been negatively impacted by Coronavirus.

The Court is also forbidden to make a winding-up order unless the above test has been satisfied.

How an Insolvency or Commercial Solicitor can assist you if you are struggling to pay your creditors

The extension on banning commercial lease eviction and winding-up petitions will be extremely frustrating to landlords and suppliers, some of whom have been waiting over 12 months for payment.  At some point, the extensions will have to cease and there could well be an influx of business insolvencies, especially for the small number of organisations that, rather than putting in a strategy to pay their creditors, have allowed the can to roll merrily down the road, hoping for further extensions.

Although the government has indicated it is planning to enact legislation to potentially ‘ringfence’ rent arrears so tenants can focus on paying current rent owed, the vast creditor protection measures currently in place cannot carry on forever.

If you have been impacted by the pandemic and associated lockdowns, the sooner you seek professional advice from an Insolvency or Commercial Solicitor the greater chance you have of negotiating a fair re-payment plan and avoiding insolvency and possibly personal liability.

When it comes to outstanding debts, the earlier you confront matters, the more choices you will have regarding meeting your creditors’ need for payment.

To make an appointment to discuss any aspect of insolvency law please email us or phone 020 8349 0321.