On 24 September 2020, the UK government extended the prohibition on creditors serving statutory demands and/or presenting winding-up petitions on COVID-19 related debts until 31 December 2020 to protect businesses from insolvency during the COVID-19 pandemic.
The Corporate Insolvency and Governance Act 2020 (“CIGA”) came into force on 26 June. Temporary measures, including allowing shareholders to continue to engage on governance issues remotely and allowing companies that have previously been subject to an insolvency procedure to employ the new moratorium procedure, were originally due to expire on 30 September. The government has since decided on an extension as part of the delicate economic balancing act being undertaken in light of the recent tightening of restrictions and localised lockdowns. The CIGA provided that the temporary periods can only be extended for a maximum of three months at a time, and in any event not later than 5 April 2021.
The modifications to the new moratorium procedure, which relax the entry requirements to it, will be extended until 30 March 2021. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months. Termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments whilst a company is going through a rescue process. Small suppliers will, however, remain exempted from the obligation to supply until 30 March 2021 so that they can protect their business if necessary.
The respite, which will take the form of restricting creditor enforcement action and also prevents suppliers from ceasing their supply or asking for additional payments whilst a company is going through a rescue process, could potentially have an adverse impact on suppliers, creditors and investors. Although the temporary measures are primarily focused on protecting businesses, the measures may inadvertently cause financial distress for suppliers and creditors who are unable to enforce their rights and recover debts owed to them.
We are encouraging all suppliers, creditors and investors to continue to maintain a positive dialogue with the businesses to whom they are exposed, where possible. In these challenging and unpredictable times, financial disputes will increase and therefore, communication and decisive early action may be key.
*The information set out in this article is correct at the date of publication (2 November, 2020). The effect of coronavirus on businesses is a fast-changing area and so it is important to obtain legal advice to ensure you are properly protected. Visit our Coronavirus (COVID-19) Hub for more Leading Insights.
If you have any questions regarding the impact of the Coronavirus upon your business or are seeking up-to-date legal advice on dispute resolution or financial recovery matters, contact Nikki Gates on 01202 294 566 or email NikkiGates@steeleraymond.co.uk.
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