On 26 March 2021, amendment to the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 (the Regulations) will come into force.

The purpose of the Regulations is to extend some of the temporary measures introduced by The Corporate Insolvency & Governance Act 2020 (CIGA), to assist companies that are struggling to deal with the ongoing economic ramifications of pandemic-related restrictions.

These Regulations apply across the UK, including Scotland.

So, what do you need to know?

1. Statutory demands and winding up petitions: 30 June 2021

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 March 2021 – known as the relevant period. The Regulations extend the relevant period to 30 June 2021.

In addition, until at least 30 June 2021, no winding up petitions can be presented unless the creditor has reasonable grounds for believing that:

i. Coronavirus has not had a financial effect on the company; or

ii. the situation that the company is in would have happened even if coronavirus had not had a financial effect on the company.

Winding up petitions are still being presented and granted where the court is satisfied that the company was insolvent prior to the pandemic. The most recent decision to test the temporary measures was A v B (2021) Ch D, where Judge Baister, who was assessing at a preliminary hearing whether to allow advertisement and listing of a petition, in England, in respect of a pre-pandemic debt. The judge found that it was likely that the court would be able to make an order in terms of s.122(1)(e) of the Insolvency Act 1986, and so allowed advertisement and listing.

The rights of creditors have been dramatically curtailed by these specific temporary measures. Given the length of time that has passed since they were first introduced, we expect that patience will start to wane and more creditors will be prepared to test the boundaries of the legislation.

2. Wrongful trading: 30 June 2021

Wrongful trading is an offence under Sections 214 and 246ZB of the Insolvency Act 1986 (the Act). It applies to directors and (former directors) of companies that have entered into liquidation or administration (for this article, we will refer to as 'insolvency proceedings') and who allowed the company to continue to trade when they knew, or ought to have been aware, that the company could not avoid insolvency proceedings.

Wrongful trading was suspended originally on 30 March 2020 and has now been extended to 30 June 2021. This measure is designed to protect directors from threat of personal liability arising from uncertainty caused by the pandemic. It is important to note that while wrongful trading has been suspended, other directors' duties have not. Directors should not take false comfort from this further extension and should continue to make decisions responsibly with the interests of stakeholders, and where appropriate, creditors, in mind.

3. Termination clauses: 30 June 2021

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 no 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 June 2021.

4. The Moratorium: 30 September 2021

Up to 30 September 2021, any company that 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 while it restructures or seeks a cash injection. It lasts 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 phase of pandemic-related restrictions.

In May, CBILs and other Government backed loans will start to become repayable. As business is allowed to open up, we expect that Government support will taper off. Directors and boards need to think carefully about they are going to repay their borrowings. Lenders and stakeholders are expected to be tolerant, but directors need to ensure that repayment proposals are credible and will stand up to scrutiny. Failure to do so in a focused and realistic way means they may find that decisions are taken out of their hands as a result of stakeholder intervention.


Lucy McCann