Posted on 10.9.21
The Corporate Insolvency and Governance Act (‘CIGA’) introduced temporary measures aimed at easing some of the most pressing financial consequences businesses experienced as a result of the coronavirus pandemic. From June 2020 these measures have attempted to provide creditors with some protection from action and ensure viable businesses were not faced with insolvency as a consequence of the pandemic. The temporary provisions were:
- A ban on winding up petitions unless the creditor has reasonable grounds to believe that either coronavirus has not had a financial effect on the debtor company, or that the company was unable to pay its debts regardless of the financial effect of coronavirus.
- A ban on statutory demands served between 1 March 2020 and 30 September 2021 being used for presenting a winding-up petition on or after 27 April 2020
However as the country returns to some normality and the economy slowly approaches pre pandemic trading conditions, the government announced on 9 September 2021 that these temporary measures would be phased out and replaced with new measures.
The restrictions on statutory demands and winding-up petitions will not be extended beyond 30 September 2021. It is worth noting that the restrictions on winding up petitions in respect of commercial rents will remain in place until 31 March 2022.
From 1 October 2021 the new measures will:
- Protect businesses from creditors insisting on repayment of relatively small debts by temporarily raising the current debt threshold for a winding up petition to £10,000 or more.
- Require creditors to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action.
These new measures will be in force until at least 31 March 2022.
The confirmation of the end of the restrictions on winding up petitions will be a welcome relief for many creditors, who have seen their options limited when trying to take action to recover debt during the pandemic.
The increase of the debt threshold for presenting a winding up petition up to £10,000 will hopefully give viable smaller businesses the opportunity to get back on their feet and trade their way back to financial health, before creditors can take action to wind them up. However those smaller businesses that might also be wishing to recoup overdue debts by issuing a winding up petition could be restricted by the new £10,000 threshold.
For creditors who are owed £10,000 or more, while they can now petition a debtor company, they will have to seek proposals from the debtor company for payment and allow the debtor 21 days to do so before proceedings with a winding up petition. This 21 day period will give debtor company’s at least some breathing space to try and evaluate their options, seek professional advice and possibly find a solution that the creditor may agree too.
If you are a creditor looking to recover a debt or a business that’s currently in financial difficulty and you would like more information on the measures discussed above and their impact, please contact our Insolvency and Corporate Recovery team at Gorvins on 0161 930 5151.