Key Changes to the Corporate Insolvency and Governance Act 2020
23 Sept 2021
Prior to the summer the Government announced that there would be a further extension under The Corporate Insolvency and Governance Act 2020 of existing restrictions on Statutory Demands and Winding-Up Petitions until 30 September 2021. It has since been announced that these temporary insolvency measures are to be phased out from 1 October 2021 and are to be replaced by new legislation and new protections for businesses. The key changes will be brought into force in England under the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (SI 2021/1029). These changes include:
1. A temporary raising of the current debt threshold for Winding Up Petitions from £750.00 to £10,000.00.
2. The requirement for creditors to seek proposals for payment, giving debtors 21 days for a response before they can proceed with a Winding-Up Petition.
3. The existing restrictions will remain on commercial landlords from presenting Winding-Up Petitions against limited companies to repay commercial rent arrears built up during the pandemic. (This runs in tandem with the restrictions on forfeiture action being extended until 31 March 2022.)
Whilst this is welcome news for creditors, it is sure to cause alarm with debtors who have been protected from insolvency action for a considerable period. Notwithstanding these new protections it is evident that the brakes are now being taken off with fresh options open to creditors. It remains to be seen if these will deter creditors. It was never strictly necessary previously to issue any demand to a company prior to presenting a Winding-Up Petition, albeit most creditors did issue statutory demands which gave 21 days in any event. Given the level of debt that has built up it is debatable if a temporary limit of £10,000.00 will save many companies from insolvency action in the short term or will simply defer action until the temporary limit is removed or the debt exceeds the limit.
In Northern Ireland it is widely expected that similar changes will be introduced to Schedule 11 of the Act which is the equivalent provision on the prohibition of Petitions on the basis of statutory demands. The Bankruptcy & Companies Masters’ Court in Northern Ireland recommenced dealing with Bankruptcy and Winding Up Petitions on 20 September which were issued before the first lockdown in March 2020. It is anticipated that the moratorium on fresh Bankruptcy and Winding-Up Petitions being issued in Northern Ireland will also to be lifted.
Creditors or Debtors who are unsure what their options are should seek expert advice in order to establish the best course of action. If you or your business is affected by any of these issues or require assistance please contact the Insolvency & Debt Recovery team at MKB Law to discuss your needs.