The Corporate Insolvency and Governance Act (CIGA) came into force on 26 June 2020 and introduced a number of temporary and permanent reforms, with the aim of supporting businesses and the economy during the pandemic. The original measures were due to expire on 30 September 2020 but the UK Government has extended some of these to 31 December 2020, which has left many creditors wondering what options are still available to them to recover debt from a company.

Insolvency proceedings - or the threat of them - were often used by creditors as a tactic in recovering outstanding sums. However, the extension of CIGA provisions continue to restrict this by:

  • Preventing the presentation of a winding-up petition on the basis of a statutory demand, where that demand was served between 1 March 2020 and 31 December 2020 (the relevant period); and
  • Preventing a creditor from presenting a winding-up petition during the relevant period, unless there are reasonable grounds for believing that:
    • coronavirus has not had a financial effect on the company; or
    • the situation would have happened even if coronavirus had not had a financial effect on the company.

The restriction extensions are discussed in more detail by my colleague Lucy McCann here. In this blog we look at the key options that remain available to creditors.

    Court proceedings

    There are currently no restrictions on commencing court proceedings in England and Wales for a debt claim. This process has longer timescales and is likely to be more expensive than issuing a statutory demand and winding-up petition once the claim has concluded. However, if successful, you would have a judgment against the debtor company that could be enforced in the normal manner (such as through a charging order or writ of control). The debtor would also have the opportunity to defend the claim, with the potential for the proceedings to become protracted.

    If the debtor does not comply with certain court deadlines at an early stage of the claim, the creditor could also apply for a default judgment which stands as an enforceable court judgment. Furthermore, if the debtor files an obviously unsustainable defence, the creditor may be able to obtain summary judgment. These mechanisms would allow the claim to be disposed of at an earlier stage, saving time and costs.

    Importantly any judgment, whether obtained on a default or summary basis, or following a court judgment, would be enforceable against the debtor company, and if unsatisfied could be used as the basis for a winding-up petition notwithstanding the current restrictions under CIGA.

    Winding-up petition – in non-coronavirus circumstances

    Under section 123(1)(e) of the Insolvency Act 1986 it is still possible to wind a company up without first presenting a statutory demand if it is "proved to the satisfaction of the court that the company is unable to pay its debts as they fall due". However, the court would need evidence that the company is balance sheet or cash flow insolvent - and that the insolvency was not coronavirus related and would have occurred regardless of the pandemic. Although it largely depends on individual facts, in many cases this will be a challenging hurdle for a creditor to clear. However, where the evidence supports it, this option allows for a non-coronavirus related winding-up petition to still be presented.

    Negotiations

    Although the UK Government has stated that the support is aimed at those struggling the most during the pandemic , some companies may seek to take advantage of CIGA restrictions by not making payments towards debts, despite having the funds to do so, for the sake of protecting cash in uncertain times. Therefore, creditors may want to try to negotiate a settlement the debt, including agreeing a payment plan. In doing so, a creditor might use the threat of court proceedings as leverage. If successful, this would ensure that some, if not all, of the debt can be recovered and the creditor can maintain its cashflow. However, this could be a slow process and unlikely to succeed against an uncooperative debtor.