End of Covid Restrictions under the Corporate Insolvency and Governance Act on the Issuing of Winding Up Petitions

Articles

01/04/2022

The 1st April 2022 marks another notable event in the return to ‘normality’, this time for creditors, as restrictions on the issuing of Winding Up Petitions are lifted.

For the first time since restrictions were introduced in June 2020 by the Corporate Insolvency and Governance Act 2020 (CIGA 2020) (unusually with retrospective applicability to Winding Up Petitions issued after 27 April 2020), creditors are no longer subject to restrictions under CIGA 2020 on when a Winding Up Petition can be issued.

Those who have followed the series of articles published by members of 1 Chancery Lane[1], on the measures introduced by CIGA 2020 to prevent aggressive debt collection during the pandemic, will recall the various different restrictions in place at different times.

Creditors will no doubt welcome the revived ability to Petition in respect of debts less than £10,000, and the removal of the requirement to issue a 21-day notice seeking proposals for payment. Whilst the restrictions under CIGA have been lifted, creditors owed sums due to commercial rent arrears should be alert to alternative restrictions under the Commercial Rent (Coronavirus) Act 2022 (CRCA 2022). These entered force on 24 March 2022. CRCA 2022 restrictions continue to apply to the presentation of petitions in respect of ‘protected rent debts’ and introduced an arbitration scheme for dealing with such debts.

It remains to be seen if almost two years of enforced restraint will result in a change of behaviour and less regular use of Winding Up Petitions as a means to recover debts. No doubt policy makers, and those who advocate that the winding up procedure is a collective insolvency mechanism not to be used for the enforcement of debts, will hope so.

More likely, advisers and those with recollections of the lengthy lead-in time between issue of Petitions and the first hearing will want to issue swiftly, lest this opening of the flood gates results in lengthy back-logs. Some may even have taken the approach of pre-emptively issuing statutory demands in the last 18 days in advance of the lifting of the restrictions. Landlords and tenants representing part of the estimated £7 billion worth of accrued rent debt will be watching on as the CIGA restrictions are lifted to identify how they may be impacted when the CRCA 2022 restrictions cease to bite.

The government and Insolvency Practitioners are likely to be monitoring the outcome of the removal of the restrictions with interest, to see whether this leads to the high volume of insolvencies predicted at the outset of the pandemic but which have never yet materialised. Whether a slew of insolvencies does follow will be a further indicator of how successful government support measures have been in protecting businesses during the pandemic. If the enforced restrictions have been successful that will no doubt be a good thing for the UK, however legitimate creditors with their own cash flow issues will regret it having been at their expense.

[1] A: https://www.dekachambers.com/corporate-insolvency-and-governance-act-2020/

B: https://www.dekachambers.com/breaking-news-government-seek-to-extend-moratorium-on-the-issue-of-statutory-demands-and-winding-up-petitions-prohibition-on-termination-clauses-and-modification-to-eligibility-for-the-new-moratoriu/

C: https://www.dekachambers.com/breaking-news-again-further-extension-of-coronavirus-protections-under-the-corporate-insolvency-and-governance-act-2020/

D: https://www.dekachambers.com/out-with-the-old-temporary-in-with-the-new-temporary-issuing-winding-up-petitions-from-1-october-2021/

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