by Patrick Finn - Senior Associate, Restructuring & Insolvency
On 24 March 2021 through The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021, the Government introduced legislation amending the Corporate Insolvency and Governance Act 2020 (“CIGA”) extending the moratorium on creditor winding up petitions to 30 June 2021.
The current position, insofar as winding up petitions are concerned, is that there is a prohibition on winding up petitions based on statutory demands as from 27 April 2020 to 31 March 2021, and that no petitions can be issued for debts that became due within what is known as the “relevant period” (between 1 March 2020 and 31 March 2021). The dates for each of the above has been extended to 30 June 2021.
The position remains that a creditor can issue a petition if it can demonstrate to the court that the company was insolvent before the pandemic and/or that payment of a debt was due on or before 29 February 2020. Similarly a creditor can pursue a petition for a debt that is due during the pandemic but the creditor must pass the “coronavirus test” and demonstrate that coronavirus had not had a financial effect on the company thus preventing payment of the debt. This would be a difficult burden to fulfil for any creditor.
The Government did say that the extension until the end of March would be a final extension but had not realised the extent to which the pandemic would last. As such they continue to shore up businesses (good and bad) to keep people in employment so as to preserve jobs and revenue from taxes.
The extension of the moratorium also restricts the Government from pursing their own debts which they do by way of winding up petition against companies that owe it money in relation to unpaid Vat and PAYE. Indeed the Government is the largest user of winding up petitions in the country.
It remains to be seen as to whether or not the extension will be extended yet further as one cannot predict what will happen over the next few months, but there is one certainty in all of this; that when the floodgates open on winding up petitions there will be an avalanche of insolvencies that will need to be dealt with by the Insolvency Service and Insolvency Practitioners alike, which will impact the economy greatly.
If you have any queries on any issues surrounding winding up petitions then you should not hesitate to get in touch; details of Irwin Mitchell's Restructuring and Insolvency team can be found on our website.