Earlier this week (9 December 2020) the UK Government announced its intention to further extend the temporary suspension of the use of statutory demands and winding-up petitions until 31 March 2021. The move will seek to offer businesses further breathing space amongst the COVID-19 pandemic.
Earlier this year, the Corporate Insolvency and Governance Act 2020 (CIGA) introduced temporary measures which:
- Restrict creditors from presenting winding up petitions on or after 27 April 2020 on the basis of an unsatisfied statutory demand served during the ‘relevant period’ (para 1, Schedule 10, CIGA);
- Provide that creditors may only present a winding up petition on or after 27 April 2020 where they have reasonable grounds for believing either that coronavirus has not had a financial effect on the company or that the company would not have been able to pay its debts even if coronavirus had not had a financial effect (para 2-3, Schedule 10, CIGA); and
- Provide that a winding up order made on or after 27 April 2020 will be void if the court is not satisfied that the test at point 2 above has been met (para 5-6, Schedule 10, CIGA).
The ‘relevant period’ was originally drafted to last from 1 March 2020 to 30 September 2020. On 24 September 2020, the Government announced that these measures would be extended to last until 31 December 2020.
On Wednesday (9 December 2020), the Government announced its intention to further extend the suspension of statutory demands and winding-up petitions until 31 March 2021, despite having previously declined to extend the provisions any further than 31 December 2020 due to the impact the provisions have on the rights of creditors. The related Insolvency Practice Direction, which was introduced to supplement the above provisions, is drafted so that it will also now automatically extend to 31 March 2021. Further details of the Direction can be found here.
The announcement marks the second time in recent weeks that the Government has changed its approach to the CIGA measures, having just recently re-introduced the temporary suspension of the wrongful trading provisions contained in section 214 of the Insolvency Act 1986 (see here).
The most recent announcement will come as a relief to businesses experiencing financial difficulties, but may be frustrating for creditors struggling to maintain their own cash flow.
The relevant statutory instrument has not yet been made, but will be expected in the coming weeks. Watch this space.
You can read more about these measures, and others introduced by the CIGA, in our Briefing Note.
On 9 December 2020 the government announced it intends to reinstate the temporary suspension of the use of statutory demands and winding-up petitions until 31 March 2021.