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Update: Corporate Insolvency & Governance Bill 2020

View profile for Julie Hunter
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The measures put in place by the government earlier this year to protect businesses against the threat of insolvency and those protecting directors against wrongful trading claims by a liquidator have been extended to 31 December 2020, to give companies and LLPs more breathing space to stay afloat during the pandemic.

Statutory demands and winding up petitions

The ban on a creditor serving a valid statutory demand and then presenting a Winding Up petition has been extended until the end of the year where the reason why the debt has not been paid is Covid-19 related.

Any statutory demand served on a company since 1 March 2020 will be void and no Winding Up based on an inability to pay debts may be presented against a company unless the creditor has reasonable grounds for believing that Covid-19 has not had a financial impact on the company, or that the debt would have been unpaid anyway.

If a winding up petition is presented it will not be advertised and a hearing will take place at which the court will decide whether or not the pandemic is the reason why the company cannot pay its debts.

Directors wrongful trading provisions suspended

The threat to directors of incurring personal liability for losses arising when the company continues to trade whilst insolvent, where they are trying to keep the company afloat during the pandemic, has been suspended until 31 December 2020.

Until 2021 a director will be assumed not to be responsible for worsening the financial position of a company which continues to trade even though it is insolvent, in the period between 1 March and 31 December 2020, even where in normal circumstances allowing a company to trade whilst insolvent would give rise to a later claim by a liquidator against a director for payment of losses which arose during the time the company was trading whilst insolvent.

Directors should note, however that their other duties and responsibilities to creditors remain in place and they will still be at risk of claims for other breaches of the companies and insolvency acts.

These measures will continue to provide businesses with protection against insolvency during this difficult time but directors should be aware – if their company was in a difficult financial position before March 2020, they remain at risk of winding up petitions proceeding before the court.

Other measures benefiting companies extended

The statutory moratorium process, which enables companies and LLPs which are, or are likely to be, insolvent but which can benefit from a moratorium against creditor action to allow time for a restructure or rescue to be put in place, has been extended to 31 December 2020.

The ban on utility suppliers ceasing supplies and the restrictions on all suppliers from terminating contracts only due to insolvency has also been extended, preventing suppliers from ceasing supplies and further prohibiting suppliers from amending existing contractual terms to impose increased payment terms or limits.

Our commercial solicitors are advising directors and members of LLPs on these issues and other measures currently in place to protect businesses during the pandemic, if your business is affected we can assist to provide bespoke advice and assistance. Contact us on 0161 696 6170