The updated position on the moratorium on insolvency procedures
On 9 September 2021, the Government announced that the current moratorium on insolvency procedures (including the use of statutory demands and presentation of winding up petitions) under the Corporate Insolvency and Governance Act 2020 (“CIGA”) will be replaced with more limited restrictions until 31 March 2022. The new rules will come into force from 1 October 2021.
This announcement means the temporary measures brought in to support businesses from creditor enforcement action during the pandemic (which we wrote about here.) will be phased out from 1 October 2021.
The Government has stated that the new measures will ‘help smaller companies get back on their feet to give them more time to trade their way back up to financial health before creditors can take action to wind them up. This will particularly benefit high streets, and the hospitality and leisure sectors, which were hardest hit during the pandemic’.
The new measures from 1 October, key points:
The current restrictions on commercial landlords presenting winding up petitions against limited companies in respect of commercial rent arrears built up during the pandemic will continue, you can read more about this here.
In respect of other liabilities (whether owed to a commercial landlord or any other creditor), there will be a temporary increase to the current threshold for issuing a winding up petition to £10,000 or more. The aim of the increased threshold figure is to protect debtors from demands of relatively small debts. The increased threshold figure of £10,000 will apply until 31 March 2022.
Creditors will also be required to seek proposals for repayment from a debtor business (which is always a good practice in any event), giving them 21 days to respond, before they can proceed with any winding up action.
Practical steps for creditors who will be able to take action
Assuming a creditor has given a debtor business 21 days to respond and the debt is over £10,000, they will be able to try to recover the debt via insolvency proceedings from 1 October 2021. Creditors in this scenario should consider preparing for this date now including checking:
(i) they know who they have contracted with (is the other party a limited company, partnership or individual?);
(ii) the terms and conditions and contractual documents are all in order and include everything which has been agreed between the parties; and
(iii) why the debt has not been paid, if there is a genuine dispute, insolvency is not the correct route to recover an outstanding debt in any event.
Whilst the new measures provide some further interim relief to businesses with debts under £10,000, this update will be welcome news for many creditors of significant sums (who are the most likely to consider taking action). We, therefore, expect many insolvency actions will be commenced. This is likely to lead to the courts becoming backlogged with applications to restrain presentation of winding up petitions, and the period between the issue of the winding up petition and the hearing date is likely to be considerable.
As a result, we strongly recommend any creditors of significant sums take stock now and seek legal support where necessary. Our highly experienced Disputes team can help.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: email@example.com