The Corporate Insolvency and Governance Act 2020 (“CIGA”) came into force on 26 June 2020 as part of the government’s response to the COVID-19 pandemic. The “debtor-friendly” measures originally introduced were due to expire on 31 December 2020 but many of which have been extended until 31 March 2021.
If you require any urgent legal assistance please get in touch with one of our team of specialist insolvency and winding-up petition lawyers.
CIGA provided that temporary provisions introduced would automatically expire on 30 September 2020. Due to the continuing circumstances surrounding COVID-19, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 (“CIGA”) has subsequently extended certain measures until 30 December 2020 or 31 March 2021.
Which Insolvency measures have been extended?
Are winding-up petitions still restricted?
Statutory demands and winding-up petitions will continue to be restricted until 31 March 2021 to protect companies from creditors who would otherwise pursue this route for coronavirus related debts.
This means a statutory demand or winding up petition cannot be issued in this period. A creditor would need to be satisfied that COVID-19 has not had an effect on a company and this may prove more difficult as we enter the tenth month of the pandemic.
What does CIGA mean for commercial landlords?
Commercial landlords are still restricted in recovering unpaid rent. They continue to be prevented from exercising their rights of re-entry and forfeiture for non payment of rent until 1 April 2021.
Section 82 of the Coronavirus Act 2020 introduced a temporary suspension of landlords’ rights to forfeit business leases until 30 June 2020 and then until 30 September 2020. The Business Tenancies (Protection from Forfeiture: Relevant Period) (Coronavirus) (England) (No. 3) Regulations 2020 will come into force on 30 December to prolong the restrictions to 31 March 2021.
Are termination causes in construction contracts still prohibited?
Termination causes are still prohibited, preventing suppliers from ceasing their supply or asking for additional payments while the company is going through a rescue process. Small suppliers will be exempt from this until 31 March 2021 so they can protect their business if necessary.
Section 12 of CGIA inserted section 233B entitled “Protection of supplies of goods and services” into the Insolvency Act which renders ineffective any contractual rights to terminate the contract or supply or do any other thing (including automatic termination or other consequences) because of the insolvency of a client.
Suppliers should carry out a risk assessment on current supply contracts to determine whether there are any defaults on payment and where they should consider terminating contracts and whether they are able to do so.
Our commercial insolvency team is ready to assist you in this process.
Does the suspension of wrongful trading measures continue?
Yes, the government has reintroduced the temporary suspension of wrongful trading measures until 30 April 2021 pursuant to the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations.
Directors will take some comfort in the extension of the suspension of wrongful trading under section 12 of the Corporate Insolvency and Governance Act 2020. This removes the threat of personal liability for now where companies are suffering as a result of COVID-19 and face a range of issues including VAT and rent arrears making it extremely difficult to prepare accurate financial forecasts.
It is important that directors do continue to adhere to statutory duties whilst continuing to trade and operate businesses as their actions will be considered if insolvency proceedings are later commenced. If you are unsure of any action you need to take or require legal advice on your duties and the current situation, please get in touch with our commercial insolvency team.
When can we recover our debts?
It is expected that the temporary periods will not be extended past 5 April 2021 however this remains to be seen subject to COVID-19 and the necessary measures at the time. So far debtor-friendly measures continue but how long will this be in the interests of genuine creditors?
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