As a follow up to our previous articles on the Corporate Insolvency & Governance Act 2020 (CIGA 2020) and winding up petitions and coronavirus (COVID-19), this article sets out the latest extensions to COVID-related measures that were set to expire at the end of September 2020.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 (“the Extension Regulations”) was brought into force on 24 September 2020 and extend the operation of a several significant Coronavirus related restrictions previously set out in CIGA 2020.
These extensions may provide welcome relief for businesses dealing with the economic impact of COVID-19 and allows them some additional breathing space to keep trading while they consider rescue options should that be necessary.
It is important to note that the provisions relating to the ‘suspensions of liability for wrongful trading’ have not been extended and expired as planned at the end of September.
Statutory Demands and Winding Up Petitions
The restrictions on statutory demands and creditors winding up petitions have been extended and will now be in force until 31 December 2020. This means that unpaid statutory demands served between 1 March 2020 and 31 December 2020 cannot be used as the basis for a winding up petition. In addition, creditors may not present a winding up petition, without ‘reasonable grounds for believing’ that the debtor company would have become insolvent regardless of Coronavirus.
The Extension Regulations alter the meaning of “relevant period” defined in schedule 10 of CIGA 2020. The effect of this is to extend the period for which validation orders are not required for companies subject to winding up petitions. The extended period lasts until 31 December 2020.
A company’s normal obligations concerning board meetings, voting arrangements, and other related provisions were temporarily relaxed by CIGA 2020. The Extension Regulations seek to extend the “Relevant Period” associated with these provisions which will now be in force until 30 December 2020.
Ipso facto Rules
Small suppliers are temporarily exempt from the “Ipso Facto Rules” which prohibit suppliers of goods and services from terminating their contracts with companies subject to insolvency procedures. This exemption has been extended by a further 6 months and will now be in place until 30 March 2021.
The new moratorium procedure was temporarily amended by CIGA 2020 to make it easier for eligible companies to use this. The Extension Regulations have extended the “relevant period” in this respect with the temporary amendments due to remain in force until 31 March 2021.
Posted on October 14, 2020