New Insolvency Practice Direction in England
Published 14 September 2020
By now many Creditors are feeling the effects of the Corporate Insolvency and Governance Act 2020 in their ability to pursue Debtors. However, many Creditors are not aware that alongside the Act in England, a new Insolvency Practice Direction (“IPD”) came into force providing additional information in respect of winding up petitions and the “coronavirus test”.
The Practice Direction was made by Order of the Chancellor of the High Court, Sir Geoffrey Vos, with the approval of the Lord Chancellor, the Right Honourable Robert Buckland QC MP, Secretary of State for Justice, on 3 July 2020.
The IPD requires that on presentation of a winding up petition that it be listed for a non-attendance pre-trial review for the first available date after 28 days from the date of presentation to determine whether, effectively, it can proceed. During that time, the petition remains private and will not show up on an insolvency search. The procedural requirements in the IPD further reinforce this and create multiple filtering methods before a petition can proceed.
The key elements of the IPD are as follows: –
- Contents of the Winding Up Petition – Paragraph 3 of the IPD states that a petition will not be accepted for filing unless it contains a statement explaining the reasoning for non-payment of the debt, alongside the creditors grounds for believing that either:
(i) coronavirus has not had a financial effect on the company; or
(ii) the facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company.
- Private Petitions – Any petition filed will now be classified as “private” until the court has concluded whether or not it is likely that it will be able to make a winding up order. A petitioning creditor is still required to serve a copy of the petition on the company and any other party specified in Rule 7.9 of the Insolvency Rules 2016.
- Pre-trial Review – If the petition is filed successfully, it will then be listed for a non-attendance pre-trial review with a time estimate of 15 minutes for the first available date after 28 days from the date of its presentation. At the pre-trial review, the court will either list an unopposed petition for a hearing in the winding up list or give directions for a preliminary hearing. At this preliminary hearing, the court will determine whether it is likely that it will be able to make an order that the debtor was unable to pay its debts having regard to the coronavirus test. Only if the court is satisfied on the evidence, will it then list the petition for a hearing in the winding-up list. From that point, the usual provisions of the Insolvency Rules relating to the further conduct of the petition will come into effect.
- Multiple Winding Up Petitions – If at any time after the court has determined that it is likely that it will be able to make a winding up order, it becomes aware that the same or different court has also made such a determination in respect of another petition concerning the same company, the court shall direct that both (or all) such petitions be listed for further hearing at the same time. In such circumstances, the court shall:
- where required, transfer the petition to the court dealing with the petition presented first in time; and
- direct that the petition presented first in time should be heard first.
The IPD is not however applicable in Northern Ireland.
Under Court Guidance dated 11 August 2020 there is no change to the previous position which is that no new creditors’ petitions, either bankruptcy or winding-up, may be presented unless the circumstances are deemed to be exceptional and the Court has approved the presentation of the petition. Furthermore, no bankruptcy or winding up Orders will be made on foot of creditors’ petitions.
The monthly insolvency statistics released by the Insolvency Service on 14 August 2020 show that in July 2020 there were a total of 955 company insolvencies in England and Wales. This comprised of 590 creditors’ voluntary liquidations (CVLs), 166 compulsory liquidations, 182 administrations and 17 company voluntary arrangements (CVAs). There were also 1,621 DROs and 913 bankruptcies in July 2020 in England and Wales (the latter was made up of 849 debtor bankruptcies and 64 creditor bankruptcies).
The same statistics show that in July 2020 there were 10 company insolvencies in Northern Ireland which consisted of 7 CVLs, 1 CVA, 1 administration and 1 compulsory liquidation – the first compulsory liquidation in Northern Ireland since the implementation of lockdown on the 23 March 2020. Also in July 2020 there were 160 individual insolvencies in Northern Ireland which consisted of 134 IVAs, 25 DROs and 1 bankruptcy.
If you wish to know more about the options currently open to you as a Creditor, please contact a member of the Insolvency and Debt Recovery team at MKB Law.
This article is for general guidance only and should not be regarded as a substitute for professional legal advice.