Corporate Insolvency: Temporary Measures extended

From 30 September 2020, The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 ("the Regulations") are in force.

The purpose of the Regulations is to extend certain of the temporary measures introduced by The Corporate Insolvency & Governance Act 2020 ("CIGA") to assist companies who are struggling to deal with the economic ramifications of COVID-19.

The timing of the Regulations coincides with the decisions of both the UK and Scottish Governments to re–introduce robust measures, which will limit trading times and impact footfall on high streets across the UK. The extension of the temporary measurers will help alleviate creditor pressure on businesses and help them to navigate the next few months.

So what do you need to know?:

Statutory demands and winding up petitions: 30 December 2020

    CIGA stops winding up petitions from being presented to court on the basis of a statutory demand, where that demand was served between 1 March 2020 and 30 September 2020 – known as the relevant period. The Regulations extend the relevant period to 30 December 2020.

    In addition, until at least 30 December 2020 no winding up petitions can be presented unless the creditor has reasonable grounds for believing that: 

    • Coronavirus has not had a financial effect on the company; or
    • the situation that the company is in would have happened even if coronavirus had not had a financial effect on the company.

      Termination clauses: 30 March 2020

      It remains the case that suppliers are no longer entitled to terminate contracts simply as a result of the company they supply to entering into a relevant insolvency procedure (which means: administration, CVA, liquidation or the new corporate moratorium).

      However, "small suppliers" who meet two of the relevant criteria (turnover of not more than £10.2m; balance sheet of not more than £5.1m and not more than 50 employees) will continue to be able to terminate and decline to supply if the counterparty enters a relevant insolvency procedure up to 30 March 2021

      The Moratorium: 30 March 2021

        Up to 30 March 2021, any company who has been subject to an insolvency procedure in the previous 12 months may enter into a moratorium, under Part A1 of CIGA.  The moratorium is a mechanism which provides businesses with access to breathing space from its creditors whilst is restructures or seeks a cash injection.  It last for 20 business days initially and can be extended by directors for a further 20 days without consent of the court or creditors.  If more time is needed creditor/court consent is required. 

        The reason for extending the temporary measures is to continue to support businesses through the next 6 month phase of lockdown measures. Company directors should note though that the Government has not chosen to extend the suspension of wrongful trading, which will expire on 30 September 2020. Over the next phase company directors therefore need to be extremely mindful of their duties and obligations to creditors.

        Clearly it will be for the UK Government to decide whether to grant any further extensions, but ultimately it will be the virus and its prevalence amongst our society that dictates what further measures may be needed and when.


        Lucy McCann