Various Covid-19 restrictions on creditors taking corporate insolvency have ended
We have been monitoring the Corporate Insolvency and Governance Act 2020 (the “Act”) closely since it came into effect on 26 June 2020.
Under the Act, as it currently stands, the relevant period of the temporary restrictions and moratorium periods can be extended pursuant to the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 (the “Regulations”).
Below, we discuss some of the actions a creditor can now bring against a company.
Winding up petitions and statutory demands
Under the Act, from 27 April 2020 to 30 September 2021, a creditor could not present a winding up petition, unless it had reasonable grounds to believe that either Covid-19 had 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 Covid-19.
There was also a ban on creditor 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.
During Covid-19, this temporary protection to debtor companies was extended four times and whilst under the provisions of the Act and Regulations it is still possible for the relevant period to be extended past 30 September 2021, the Government is yet to do so. Given that some time has now passed, it seems more likely than not that creditors are safe to serve and rely upon statutory demands and/or winding-up petitions without them being declared void to recover debts against companies.
Wrongful trading claims
There was a temporary restriction of the wrongful trading rules under the Act which removed personal liability on directors trading through Covid-19. The Act provided that when considering the contribution that a director is required to make to company assets, the court is to assume the director is not responsible for any worsening of the financial position of a company or its creditors during the period 1 March 2020 to 30 September 2020 and during the period from 26 November 2020 to 30 June 2021. Fraudulent trading and director disqualification and general directors’ duties however continued to apply during Covid-19.
Since the expiration of this temporary protection to directors on 30 June 2021, this has not been extended and so, creditors and/or liquidators now have the green light to bring these claims.
Restrictions on termination of supplier contracts
The temporary restriction on preventing a supplier from demanding/bringing court proceedings for payment of sums falling due under goods or services contracts also ended on 30 June 2021
Companies House filings
Automatic extensions to deadlines for filing accounts with the Companies House have also ended. The automatic extensions permitted under the Act have now ceased for Companies House filing deadlines occurring after 5 April 2021.
Whilst the Act still provides other forms of relief and moratoriums for distressed businesses, the procedures set out above can now be taken against companies.
Given the speed with which the Act has been passed, there is still some risk that the courts will continue to sympathise to some extent with debtor companies. However, moving forward, we suspect that the burden of proving that Covid-19 caused the company’s demise will shift to the debtor company as opposed to the creditor needing to first ensure that the company was unable to pay its debts regardless of Covid-19 (which is a near impossible task in the absence of having access to the company’s books and records) before wasting substantial costs in bringing the above actions.
For the avoidance of doubt, the Act is concerned with corporate insolvency only. There are currently no restrictions in place to prevent creditors recovering undisputed debts against individuals through insolvency proceedings.
Articles are intended as an introduction to the topic and do not constitute legal advice.