30 September 2021 – a Key Date for Insolvency Professionals
As a result of the coronavirus pandemic, the Corporate Insolvency and Governance Act 2020 (“CIGA”) received Royal Assent on 25 June 2020. CIGA made a number of substantial changes to existing insolvency legislation. Some of the significant changes (discussed in further detail below) were in relation to the presentation of winding up petitions and statutory demands.
What are the changes?
Schedule 10, paragraph 1 of CIGA provides, insofar as is material, that a statutory demand served between the period of 1 March 2020 – 30 September 2021 cannot provide the basis of a winding up petition when presented against a registered or unregistered company.
Schedule 10, paragraph 2 of CIGA also introduces an additional hurdle for petitioning creditors. In general terms, a petitioning creditor must be able to demonstrate that they have reasonable grounds for believing that:
- The debtor company has not been financially affected by the coronavirus pandemic, or;
- The debtor company would have been insolvent in any event even if the coronavirus pandemic had not had an effect on the financial affairs of the debtor company.
The above is known as the coronavirus test. Schedule 10, paragraph 3 of CIGA extends the coronavirus test to unregistered companies.
What are the problems?
One particular gap in the legislation is that financial effect is not defined, meaning this will be left to judicial interpretation on a case-by-case basis. Further, although a petitioning creditor must now include confirmation within a winding up petition that the coronavirus test is met, (see schedule 10, paragraph 19 (3) of CIGA) it is difficult to see how, in practice, a petitioning creditor would be able to realistically determine this given it is likely they will be unfamiliar with the debtor company’s financial affairs.