Insolvency Provisions Extended as COVID-19 Continues to affect UK Businesses
On 29 September 2020 the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 (“The Regulations”) came into force across the UK, extending the some of the temporary provisions put in place by The Corporate Insolvency & Governance Act 2020.
The Regulations coincide with the Government’s announcement of the Job Support Scheme, extension of Government-backed borrowing, together with the tightening of social measures across the UK with the Government’s ‘Rule of Six’.
The Government has made clear that the Regulations are intended to provide businesses continued protection whilst the COVID-19 pandemic continues to affect the UK economy, and to ensure that companies emerge from the pandemic “intact”.
What Are the Changes?
1. Annual General Meetings (“AGM”)
In accordance with the Companies Act 2006, publicly and/or traded companies are required to hold an AGM within six months of the end of the company’s financial year. Private companies may also be required to do so, if there is such a requirement incorporated into the company’s articles of association.
The Government has, however, introduced provisions to allow Companies and other qualifying bodies, to have flexibility to hold these meetings virtually. Such provisions are contained within Schedule 14, paragraph 3 of the Regulations and apply until 30 December 2020.
2. Statutory Demands and Winding-Up Petitions
A statutory demand is a formal demand made to a debtor that owes money to a creditor for payment of a debt. If the debtor does not respond to the demand within 21 days, then, ordinarily, the creditor is able to:
- For an individual debtor, issue a creditor’s petition for the debtor to be declared bankrupt, providing the debt is a liquidated debt and is over £5,000 or more in value; proceedings against any individuals who owe them £5,000 or more; or
- For a debtor company, issue a creditor’s petition for the company to be wound up , meaning it would be placed into compulsory liquidation by the Court, providing that the debtor company owes the creditor £750 or more.
Under the new Regulations, the issue of statutory demands and winding-up petitions at Court continue to be restricted until 31 December 2020. Creditors are therefore unable to an issue a statutory demand or winding up petition, relying upon an outstanding statutory demand issued between 1 March 2020 and 31 December 2020.
There is, however, an exception to this rule whereby a creditor has reasonable grounds for believing that Covid-19 has not had a financial effect on the debtor company, or that the company’s inability to pay would have arisen even if coronavirus had not had a financial effect on it.
3. Prohibition on Termination Clauses
The Corporate Insolvency & Governance Act 2020 (“CIGA”) brought in provisions to prevent suppliers from terminating a supply contract, based solely on the other party entering into an insolvency process. The CIGA did, however, include an exception whereby small suppliers are exempt from this prohibition on termination. Small suppliers are defined by legislation with reference to turnover, balance sheet and number of employees.
The Regulations have extended the small supplier exemption until 30 March 2021.
4. Changes to Moratorium Procedure
- The CIGA also amended the procedure to enter into a moratorium. Such amended procedure relaxes the entry requirements, allowing a director of a company which has been subject to an insolvency procedure in the previous 12 months to retain control over the daily running of the business whilst considering restructuring options.
The Regulations extend these procedures until 30 March 2021.
5. End to the Suspension of Liability for Wrongful Trading
In April 2020, we reported that there would be a temporary suspension of wrongful trading rules applied from 01 March 2020. This meant that company directors could not be personally liable for their decisions during the COVID-19 outbreak.
This suspension was terminated on 30 September 2020, meaning that company directors may now be found personally liable for company debts, where they continue to trade whilst in the knowledge the company will not be able to avoid liquidation. It is therefore vital that directors who have concerns about the solvency of their business seek early advice on their options.
How can we help?
Our specialist advisors in the Insolvency team here at Ellis Jones will be happy to assist you in reviewing your company’s financial position and advising on suggested next steps.