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Update on the Covid-19 temporary insolvency measures under the Corporate Insolvency and Governance Act 2020

On 26 March 2021 insolvency measures supporting businesses during the pandemic and aiding their recovery were extended.

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Published 18 June 2021

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  • Financial services

Once again, the Government has legislated to extend existing insolvency temporary measures through the CIGA (Coronavirus) (Early Termination of Certain Temporary Provisions) Regulations 2020 and the CIGA (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020. Additionally, the restrictions on forfeiture by landlords have been extended.

On 26 March 2021 the following insolvency measures supporting businesses during the pandemic and aiding their recovery were extended:

1.  Statutory demands and winding-up petitions (Schedule 10 CIGA 2020):

These will continue to be restricted to protect companies from creditor enforcement action until 30 September 2021.

A winding-up petition cannot be presented against a company based on a statutory demand that was served between 1 March 2020 and 30 September 2021.

A winding-up petition also cannot be presented between 1 March 2020 and 30 September 2021 based on a company’s inability to pay its debts unless (1) the creditor has reasonable grounds for believing that Covid-19 has not had a financial effect on the company, or (2) the company would have been unable to pay its debts even if COVID 19 did not have a financial effect on the company.

2. Suspension of ipso facto (termination clauses) (Section 15 CIGA 2020):

Small suppliers remain exempt until 30 June 2021 from the new provisions introduced by section 233B of the Insolvency Act 1986 which generally prevent a supplier from relying on a contractual termination clause in order to cease supplying goods or services to a company because it has gone into a formal insolvency process.

A small supplier for these purposes is one which satisfies two of the following three conditions: (1) a turnover of not more than £10.2 million; (2) a balance sheet total of not more than £5.1 million; and (3) employees of no more than 50.

3. The suspension of wrongful trading liability (Section 12 CIGA 2020):

The relaxation of directors’ liability, under wrongful trading provisions, for any worsening of a company’s financial position has been extended to 30 June 2021.

4. Insolvency Moratorium

The temporary rules relating to a moratorium under Part A1 of the Insolvency Act 1986 have been extended to 30 September 2021. These include:

  • a waiver of the requirement that a company seeking a moratorium must use a court application even if they are subject to a winding-up petition.
  • the monitor of the moratorium can qualify their view that it is likely to result in the company being rescued as a going concern with the caveat that this does not take into account any worsening of the company’s financial position due to Covid-19; and
  • companies are eligible for the moratorium despite having been subject to a moratorium in the previous 12 months.

Commercial Lease Forfeiture

The Government has announced the extension of commercial lease forfeiture restrictions for another nine months, from the initial deadline of 30 June 2021 to 25 March 2022.

Under these provisions, commercial landlords are prevented from forfeiting commercial leases or evicting their tenants for non-payment of rent.

Future extensions

It is possible that these restrictions may be extended again as The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Change of Expiry Date) Regulations 2021 (SI 2021/441) extend the power to amend insolvency and corporate governance legislation for periods of up to six months, for Covid-19 reasons, until 29 April 2022.

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Longer Reads

Update on the Covid-19 temporary insolvency measures under the Corporate Insolvency and Governance Act 2020

On 26 March 2021 insolvency measures supporting businesses during the pandemic and aiding their recovery were extended.

Published 18 June 2021

Associated sectors / services

  • Corporate recovery, restructuring & insolvency
  • Financial services

Authors

Once again, the Government has legislated to extend existing insolvency temporary measures through the CIGA (Coronavirus) (Early Termination of Certain Temporary Provisions) Regulations 2020 and the CIGA (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020. Additionally, the restrictions on forfeiture by landlords have been extended.

On 26 March 2021 the following insolvency measures supporting businesses during the pandemic and aiding their recovery were extended:

1.  Statutory demands and winding-up petitions (Schedule 10 CIGA 2020):

These will continue to be restricted to protect companies from creditor enforcement action until 30 September 2021.

A winding-up petition cannot be presented against a company based on a statutory demand that was served between 1 March 2020 and 30 September 2021.

A winding-up petition also cannot be presented between 1 March 2020 and 30 September 2021 based on a company’s inability to pay its debts unless (1) the creditor has reasonable grounds for believing that Covid-19 has not had a financial effect on the company, or (2) the company would have been unable to pay its debts even if COVID 19 did not have a financial effect on the company.

2. Suspension of ipso facto (termination clauses) (Section 15 CIGA 2020):

Small suppliers remain exempt until 30 June 2021 from the new provisions introduced by section 233B of the Insolvency Act 1986 which generally prevent a supplier from relying on a contractual termination clause in order to cease supplying goods or services to a company because it has gone into a formal insolvency process.

A small supplier for these purposes is one which satisfies two of the following three conditions: (1) a turnover of not more than £10.2 million; (2) a balance sheet total of not more than £5.1 million; and (3) employees of no more than 50.

3. The suspension of wrongful trading liability (Section 12 CIGA 2020):

The relaxation of directors’ liability, under wrongful trading provisions, for any worsening of a company’s financial position has been extended to 30 June 2021.

4. Insolvency Moratorium

The temporary rules relating to a moratorium under Part A1 of the Insolvency Act 1986 have been extended to 30 September 2021. These include:

  • a waiver of the requirement that a company seeking a moratorium must use a court application even if they are subject to a winding-up petition.
  • the monitor of the moratorium can qualify their view that it is likely to result in the company being rescued as a going concern with the caveat that this does not take into account any worsening of the company’s financial position due to Covid-19; and
  • companies are eligible for the moratorium despite having been subject to a moratorium in the previous 12 months.

Commercial Lease Forfeiture

The Government has announced the extension of commercial lease forfeiture restrictions for another nine months, from the initial deadline of 30 June 2021 to 25 March 2022.

Under these provisions, commercial landlords are prevented from forfeiting commercial leases or evicting their tenants for non-payment of rent.

Future extensions

It is possible that these restrictions may be extended again as The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Change of Expiry Date) Regulations 2021 (SI 2021/441) extend the power to amend insolvency and corporate governance legislation for periods of up to six months, for Covid-19 reasons, until 29 April 2022.

Associated sectors / services

  • Corporate recovery, restructuring & insolvency
  • Financial services

Authors

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