Extension of Restrictions under Corporate Insolvency and Governance Act 2020

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As of yesterday, Thursday 24 September 2020, the Government has brought into force an extension to the operation of a number, but not all, of the restrictions and measures found within the Corporate Insolvency and Governance Act 2020 (“CIGA”). This has been done via Regulation 2 of The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 SI 2020/1031.

Statutory Demands and Winding up Petitions

The restrictions regarding service of statutory demands and winding up petitions have been extended by 3 months. The updated end date for these restrictions is 31 December 2020.  

As such, no statutory demand will have been validly served between the period of 1 March 2020 and 31 December 2020. This applies regardless of whether the debtor or company has been impacted in any significant way by the coronavirus crisis.

Winding up petitions may not be presented for the full period of 27 April 2020 to 31 December 2020 unless the petitioner has ‘reasonable grounds for believing’ that the company would have been deemed insolvent even if coronavirus had had no financial effect on it.

Validation Orders and Company Meetings

The temporary rules regarding both seeking of validation orders and company meetings have been extended to 31 December and 30 December 2020 respectively.

No company subject to a winding up petition presented between 27 April 2020 and 31 December 2020 will have to apply for any validation orders under s.127 Insolvency Act 1986. This exemption does not depend on the company showing that it is only insolvent due to coronavirus related issues.  

Regarding the temporary rules around company meeting (including no longer requiring meetings to be held in any particular place or to have a physical quorum, and allowing electronic voting), these have been extended to 30 December 2020, as opposed to 31 December 2020.

Small Suppliers and Ipso Facto Rules

The CIGA rules relating to ‘ipso facto’ clauses were enacted to prevent suppliers from terminating contracts with companies subject to various insolvency procedures.

To protect smaller suppliers, they were provided temporary dispensation from these rules. This dispensation has now been extended until 30 March 2021, and will allow ‘smaller suppliers’, as defined in s.15 CIGA, to continue to rely on ipso facto clauses.

Moratorium Regime

The Moratorium was a principle introduced in s.1 CIGA. The regime in CIGA set out which companies could invoke this new procedure, and which could not. The Government then introduced temporary modifications to increase the ease with which certain companies could invoke the Moratorium procedure.

The temporary modifications allowed a company to:

  1. Use the out of court filing route (as opposed to having to apply to court);
  2. Invoke the procedure even if the company had been subject to a CVA, administration, or Moratorium within the past year (initially, this would have disqualified a company from doing so);
  3. Rely on a wider certification with regards to the rescue of the company via the Moratorium procedure.
    • Temporary modification wording:
      • “it is likely that a moratorium for the company would result in the rescue of the company as a going concern or would do so if it were not for any worsening of the financial position of the company for reasons relating to coronavirus”.
    • Pre-modification wording:
      • “likely…[to] result in the rescue of the company as a going concern”.

These temporary modifications have been extended to 30 March 2021.

Suspension of Liability for Wrongful Trading

This provision has not been extended. The previously set out date for the temporary suspension is 30 September 2020, and as such, this provision is still set to expire at midnight on Wednesday 30 September 2020.

Article Author

Jeremy Boyle

Jeremy Boyle

Managing Partner & Head of Insolvency