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End of Coronavirus Restrictions on Insolvency Procedures

View profile for Jessica McSorley
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Current restrictions on insolvency procedures are due to come to an end on 31 March 2022.

Prior to the introduction of the Corporate Insolvency and Governance Act 2020 you could present a winding up petition against a company for an undisputed debt of over £750.00.

As a consequence of the economic effects of the pandemic the Corporate Insolvency and Governance Act 2020, was made law, and, sought to suspend temporarily parts of insolvency law to support directors to continue trading and to protect companies from aggressive creditor action. It put a ban on statutory demands being presented over a “relevant period” and stopped you from presenting a winding up petition against a company unless you could prove that the company had not been impacted by Covid. These measures came to an end on 30 September 2021 and the current restrictions are somewhat more relaxed.

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021, sets out further temporary restrictions which have been in place since October 2021. The provisions state that: -

  1. The debt must not be an ‘excluded debt’. An excluded debt is a debt in respect of rent, or any sum or other payment that a Tenant is liable to pay, under a relevant business tenancy. This is of course bad news for Landlords who are presently prevented from using the Insolvency procedure.
  2. The debt must be for a sum of £10,000.00 or more.
  3. There are some additional procedural hurdles, one of which requires the service of another notice asking the company for its proposals to pay the debt. If the company does not put forward proposals to the creditor’s satisfaction the creditor can present a winding up petition.

These temporary restrictions will come to an end on 31 March 2022.

We are yet to hear whether any of the restrictions will be extended in any way. Whilst some practitioners believe that the minimum level of the debt required may be increased from the former £750.00 to either the current level of £10,000.00 or the level required for bankruptcy petitions, being £5,000.00, it does seem inevitable that we will return to pre-pandemic insolvency legislation.

One specific area of concern for many businesses will be in respect of commercial rents. In absence of any further amendment, Landlords should be able to present petitions for the winding up of their Tenants, for unpaid rent, save for where the ‘ring fenced’* debts are concerned, and that the minimum threshold of debt required should reduce.

*Ring fenced debts will be those rents or other sums which a Tenant is liable to pay which accrued during periods of mandatory business closures. There is a Bill which is currently going through Parliament which seeks to carve out these debts and subject them to a binding arbitration process.

If you wish to discuss the potential impact of the ending of the temporary restrictions of insolvency rules or insolvency matters in general, please contact our Insolvency Team on 01562 820181 or email Jessica McSorley at jessica.mcsorley@mfgsolicitors.com

 

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