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The end of the insolvency restrictions is in sight

View profile for Jessica McSorley
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The Corporate Insolvency and Governance Act 2020 sets out that you cannot present a winding-up petition against a company based on a statutory demand that was served between 01 March 2020 and 30 September 2021, nor present a winding-up petition between 01 March 2020 and 30 September 2021 based on the company's inability to pay its debts unless you have reasonable grounds for believing COVID-19 has not had a financial effect on the company or the debt issues would have arisen anyway. This has had a significant impact on creditors who have felt as though they have been left without a remedy but has undoubtedly been a saving grace for debtor companies, allowing those companies to trade out of the pandemic.

The restrictions only extend to 30 September 2021 following which creditor’s will be at liberty to serve statutory demands on debtor companies putting pressure on the debtor to either pay up within 21 days or otherwise risk insolvency. If you have served a company with a statutory demand between the period of 01 March 2020 and 30 September 2021 it is advised that you serve the company with a further statutory demand which you will be able to present a winding up petition off the back of should the debtor company fail to make payment. Accordingly, now is an apt time for creditors to reconsider their bad debts with a view to taking appropriate action.

The lifting of the restrictions which has halted the majority of insolvency matters for the best part of 18 months will inevitably lead to a flurry of activity. If you are a debtor company it is paramount that you act before 30 September 2021. As a debtor company, in order to avoid insolvency proceedings being initiated you should look to negotiate with your creditors to see whether an agreement can be made or a payment plan entered into. If you wait until a statutory demand is served on you before taking action not only will you be at risk of insolvency, you will also face significant costs in responding to the statutory demand.

The lifting of the restrictions may be of particular interest to landlords of commercial premises because whilst they cannot serve notice to forfeit the lease for non-payment of rent (noting that restrictions prohibit them from doing so until 25 March 2022) they will be able to serve the tenant with a statutory demand threatening the solvency of the tenant should it fail to make payment. Tenant’s should be wary of this.

Should you wish to discuss this article please contact our Insolvency Team on 01562 820181.

Sam Pedley (samuel.pedley@mfgsolicitors.com)

Jessica McSorley (jessica.mcsorley@mfgsolicitors.com)

Rachel Chambers (rachel.chambers@mfgsolicitors.com)

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