Through the Corporate Governance and Insolvency Act 2020 (“CIG”) the Government has sought to mitigate the wide spread insolvency risk facing businesses as a result of the Covid-19 pandemic. Notable amongst the CIG measure has been the suspension on the use of statutory demands and resulting winding up petitions in circumstances where the company’s difficulty in clearing a debt is related to coronavirus. Until recently this protection was due to expire on 31 December 2020, this would of meant that creditors were again at liberty to use statutory demands and winding up petitions as of January 2021.
However, the Government announced on 9 December that it intends to extend the moratorium on the use of statutory demands and winding-up petitions further until at least 31 March 2021. This development will doubtless be welcomed by all manner of businesses that have been adversely effected by the pandemic since it provides additional protection from aggressive creditor action and crucially, more time to seek solutions to liquidity issues.
In addition to the above, the Government also recently announced its intention to reinstate interim protection for directors related to personal liability for wrongful trading. This protection had been allowed to expire on 30 September 2020. The aforementioned protection previously suspended the operation of sections 214 and 246ZB of the Insolvency Act 1986 – provisions which impose personal liability on the director of a company in the event of liquidation or administration for failing to take all steps possible to minimise loss to the company’s creditors in circumstances where that director knew or ought to have known that there was “no reasonable prospect” that the company would avoid insolvent liquidation or administration. Although it is presently unclear when this measure will be re-introduced, it is illustrative of the Government’s recognition that during the current crisis business re-growth may be fettered where directors are made to hesitate by the threat of being held personally liable.
Full details of the Government’s announcement can be viewed at: https://www.gov.uk/government/news/government-gives-businesses-much-needed-breathing-space-with-extension-of-insolvency-measures
If you require legal assistance with a disputed debt (either as a creditor or debtor) or are concerned about potential liability as director, our Dispute Resolution team would be happy to assist you.
This Covid-19 newsflash was written by Litigation Associate William Bainbridge.