The Corporate Insolvency and Governance Bill was finally introduced to Parliament on 20 May. It is now clear that the provisions of the Bill relating to statutory demands and winding up petitions will apply to Scotland without the need for the Scottish Government to pass further legislation.
Statutory demands
The Bill prevents creditors from presenting a winding up petition to the court against a company on or after 27 April on the basis of a statutory demand served between 1 March and 30 June 2020. It therefore effectively makes a statutory demand served between those dates useless.
It does not ban charges for payment, the method commonly used by landlords to recover arrears in Scotland. A charge gives the tenant 14 days to pay the arrears, failing which, the landlord can petition to wind up the tenant.
Winding up petitions – what if the tenant's reason for non-payment is non-covid-19 related?
The Bill would still allow commercial landlords to present a winding up petition – based, for example, on an expired charge for payment - against a tenant. The landlord would need to show that it has reasonable grounds for believing that:
- coronavirus has not had a financial effect on the company, or
- the company would have been deemed unable to pay its debts (as defined under the relevant sections of the Insolvency Act 1986) even if coronavirus had not had a financial effect on the company.
This exception does not apply to statutory demands served between 1 March and 30 June 2020: they cannot be relied upon at all.
'Reasonable grounds' is not a particularly high threshold for landlords to meet in order to get their petitions in front of a Judge.
'Financial effect' is significantly higher. It is hard to imagine any tenant that has not been affected financially by coronavirus. It therefore appears that only those tenants that were, in effect, insolvent before coronavirus will be wound up by the courts.
Petitions presented on or after 27 April but before the Bill comes into force
The next reading of the Bill is not until 3 June; the Government seems to be in no rush to make it law. The Bill does, however make it clear that the courts should not be winding up any companies where the above conditions are not met. And if a court does, the Bill allows the court to restore the company.
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