News & Updates
Government starts to unwind Coronavirus protections
On 9 September 2021, the UK Government announced the start of a gradual unwinding of the legislative protections which had been put in place to protect company debtors who might be struggling financially during the Coronavirus pandemic.
Specifically, in the Corporate Insolvency and Governance Act 2020 (CIGA), there had been a prohibition against liquidation petitions based on expired statutory demands, and otherwise petitions could not proceed unless the creditor could establish that the reason for the non-payment of a debt was due to reasons other than Coronavirus. As lockdown went on, and businesses were forced to remain closed for much longer than anticipated, the effect of this provision ended up being broadly similar to a simple ban on creditor-led liquidation.
This provision is now to be amended, so that from 1 October 2021, the new position will be that liquidation petitions can proceed if:-
1. The debt owed to the creditor is more than £10,000 (previously £750); and
2. The creditor has given the debtor company at least 21 days to make proposals for payment.
It should be noted that, at present, it’s not clear whether the legislation will impose any obligation on creditors to act reasonably as regards any proposals from a debtor company, although “reasonableness” tends to be in the eye of the beholder in any event.
One important caveat is that the new provisions will not apply to commercial rent debt – here, landlords will still require to meet the test in CIGA about whether the debts are Coronavirus-related.
These provisions (which haven’t yet been published in Statutory Instrument form) are expected to be in force until 31 March 2022.
In England, commercial tenants will still be protected from eviction until 31 March 2022, although in Scotland it has always been the case during the pandemic (and still is) that commercial tenants could still be evicted, albeit longer notice had to be given to them before proceedings could be raised.
This is the start of the Government trying to get things back to normal, while striking a balance between the desire to get the economy flowing again and the need to protect businesses who may still be vulnerable and trying to build up their balance sheets after the worst of the lockdown pressures have passed. It seems clear that the intention is to prevent a flood of corporate insolvencies, but it’s at least an open question as to whether the Government is simply the proverbial boy with his finger in the dyke……
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