Insolvency measures to be extended

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by Martin Kingman 
| 25 September 2020

Many business owners are breathing a sigh of relief after the recent government announcement (24 September 2020) that measures put in place to protect businesses from insolvency will be extended to continue giving them much-needed breathing space during the ongoing Covid-19 pandemic and economic downturn.

The many changes introduced by the new Corporate Insolvency and Governance Act 2020, designed to protect businesses from insolvency, were due to expire on 30 September. These temporary measures include:

  1. The use of Statutory demands and winding-up petitions will continue to be restricted until the end of the year to protect companies from aggressive creditor enforcement action due to coronavirus related debts.
  2. Termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, small suppliers will remain exempted from the obligation to supply until the end of March 2021 so that they can protect their business if necessary.
  3. Modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until the end of March next year. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months.
  4. Measures will also ease access for companies subject to a winding-up petition. The temporary moratorium rules will also be extended for the same period.
  5. Companies and other qualifying bodies, with obligations to hold AGMs, will continue to have the flexibility to hold these meetings virtually until the end of 2020. This means that shareholders can continue to examine company papers and vote on important issues remotely.

Commenting, Business Minister Lord Callanan said: “It is vital that we continue to deliver certainty to businesses through this challenging time, which is why we are now extending these important and necessary measures to protect companies from insolvency. Through this measure, we want to ensure businesses are able to not only come through this testing period, but also to plan, adapt and build back better.”

So, what does this all mean in brief?

  • Statutory demands made between 1 March and 31 December 2020 are void.
  • Winding-up petitions presented from 27 April to 31 December 2020 are suspended where a company’s inability to pay is the result of the Covid-19 pandemic.
  • Restrictions on the court’s jurisdiction to make a winding-up order will apply until the end of 2020.
  • Small business suppliers are exempt from the prohibition on enforcement of ipso facto clauses until the end of March 2021.
  • Landlords are prevented from using commercial rent arrears recovery (CRAR) before the end of this year.
  • Commercial leases cannot be forfeited for non-payment of rent or other sums due between 26 March and the end of December 2020.

Martin Kingman, CEO of Professional Legal Collections Ltd, observes that this will be a double-edged sword: “It will give some businesses certainty and protection but it could also damage others whose debtors are not paying up and using the protection not to keep their business afloat but as a mechanism to avoid and delay payment as long as possible. Despite these restrictions, we urge any struggling businesses to contact us for specialist advice and protection in these uncertain times.”

Dated: 25 September 2020

*Nothing in this article constitutes legal advice or gives rise to an advisor/client relationship. Specialist legal advice should be taken in relation to your specific circumstances. This article is provided for general information purposes only. Whilst we endeavor to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission as it is based upon our interpretation of the law. Please be aware that the legal circumstances may have changed since this article was first published in September 2020 and you should contact us for specific up to date advice on your circumstances.

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