The remaining restrictions on creditors presenting statutory demands and winding up petitions will come to an end this week on the 31st of March. This will be welcome news for creditors but less so for debtors.
By way of a recap, the Corporate Insolvency and Governance Act 2020 (CIGA) came into force on the 26th of June 2020 to relieve the burden on businesses during the COVID-19 pandemic and allow efforts to be focused on continuing to operate without slipping too far into the red. One particular schedule of the CIGA act (schedule 10) restricted the presentation of debt-related winding-up petitions, including rent arrears, that resulted as a direct result of the pandemic to give companies breathing space from creditors.
The CIGA restrictions were due to end on the 30th of September 2020 but were subsequently extended to the 30th of September 2021.
Temporary insolvency measures from the 1st of October 2021 to the the31st of March 2022
The schedule 10 restrictions did not extend beyond 30 September 2021 but the Insolvency Service announced that there would be temporary measures in place that would apply from the 1st of October 2021 until the 31st of March 2022 during which conditions had to be met in order for a creditor to present a winding-up petition. These conditions included:
- A creditor could not present a petition in respect of commercial rent that was unpaid because of the financial effect of COVID-19
- A creditor could not present a petition for a debt less than £10,000
- A creditor had to provide written notice to the debtor seeking proposals for payment of the debt and allow 21 days to make a proposal to the creditor’s satisfaction. A creditor could apply to court for an order that they do not need to deliver a Schedule 10 notice or give 21 days to make a satisfactory proposal
Temporary insolvency measures ending
The remaining temporary insolvency restrictions outlined above are being lifted from the 1st of April 2022 and the Government has confirmed that the insolvency regime is to return to its pre-pandemic operation. As a reminder, a winding-up petition can, once again, be presented by creditors for debts in excess of £750. As insolvency law practitioners and experts, we are somewhat surprised that this threshold was not permanently increased, at least to mirror the threshold for the presentation of a bankruptcy petition – currently £5,000.
What can we expect?
Many creditors around the UK will welcome this news and will be swiftly putting things in motion to recover debts that they have been prevented from pursuing for so long.
The recently released insolvency statistics for February 2022 confirmed that there were 74 compulsory liquidations last month – being 68% lower than February 2020 in a pre-pandemic landscape. Notwithstanding the restrictions, which are coming to an end, we would have expected a greater number of compulsory liquidations for last month.
With the governmental shackles being removed from creditors, it will undoubtedly result in a significant increase in the number of compulsory liquidations. However, given the proximity between issuing a winding-up petition and reaching a final hearing – as well as the increased pressure on the court system that is likely to follow as a result of the lifting of the remaining restrictions, we expect that it will not be until as late as August 2022 before we see a significant increase.
How can we help?
Prosperity Law LLP has specific expertise in advising a wide range of clients on matters relating to corporate governance, insolvency and bankruptcy, including in relation to the presentation of and responding to statutory demands, winding up petitions and bankruptcy petitions.
For more information, please contact Andrew Laycock, on 0113 380 4313 or a Andrew.Laycock@prosperitylaw.com.
