There is significant relief for debtor-companies this Christmas, as the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020 come into force on 31 December 2020 (the "Extension Regulation").
For creditors however, the Extension Regulation will be not be welcomed, as the "temporary" prohibitions in Schedule 10 of the Corporate Governance and Insolvency Act 2020 ("CIGA") on creditors issuing winding up petitions based on statutory demands, has once again been extended from 31 December 2020 to 31 March 2021.
Of course, it is not mandatory for a creditor to issue a statutory demand ahead of presenting a winding-up petition. Even here however, the restrictions in Schedule 10 of CIGA will continue to bite, as by paragraph 2, Schedule 10 CIGA, a winding-up petition may not be issued unless the creditor has reasonable grounds for believing and can evidence that Coronavirus has not had a financial effect on the debtor company.
In practice, this is a moratorium for debtor companies in all but name; as no doubt most debtors would argue that Coronavirus has had some form of negative "financial effect" on their business. The creditor meanwhile, has an essentially impossible (and very expensive) task of producing evidence to prove that Coronavirus has not financially affected the debtor.
The one slight concession to creditors, would appear to be in respect of "Pre-Covid Debts", i.e., debts which became payable and/or overdue before 1 March 2020. The restriction on issuing winding-up petitions in Schedule 10 CIGA will not apply, where a creditor has reasonable grounds to believe and can evidence, that the debtor company was unable to pay their debts or, would have become insolvent in any event, notwithstanding any adverse financial impact suffered by Coronavirus. Proving a debt became payable / overdue before 1 March 2020, should be more feasible for creditors, so that a winding-up petition remains an option in respect of such debts.
Creditors should bear in mind, that the provisions in Schedule 10 CIGA do not amount to a complete bar on commencing debt recovery actions against corporate debtors. The various inexpensive, available tools for a debt recovery action, such as Letters of Demand for Payment and statutory demands, are still permitted. As too is issuing a County Court Claim. These tools are often just as effective in recovering debts as are issuing winding-up petitions.
Our message therefore, is that whilst Schedule 10 CIGA will for a short time limit creditors' ability to issue a winding-up petition, it is still very much 'business-as-usual' in terms of creditors being able to take the initial and less expensive actions to recover debts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
