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Statutory Demands, Winding Up Petitions and Covid 19 – What to Expect Next

Although there has been welcome advance warning that the government will extend restrictions effecting residential and commercial landlords, the situation with respect to the restrictions under the Corporate Governance and Insolvency Act 2020 (CIGA2020) and whether they will be extended remains unclear. (See our blog here for a fuller analysis of the effect of CIGA on statutory demands and winding up petitions).

Current Position

Creditors have been unable (since 27 April 2020) to present a winding up petition based on a failure to satisfy a statutory demand which was served after 1 March 2020. You can still serve a demand, but it is essentially a toothless exercise and debtor companies are aware of this. Currently the relevant period will end on 30 September 2021.

Likewise during the relevant period creditors have been unable to present a petition for the winding up of a registered company under section 124 of the Insolvency Act 1986 (IA1986) on any of the grounds at sections 123(a-e) or section 124 unless the creditor has reasonable grounds for believing that coronavirus has not had a financial effect on the debtor company, or that the debtor company would be insolvent irrespective of any financial effect of coronavirus. Unless the petitioner can satisfy the court of either of those limbs the court will not grant a winding up order. These requirements are also due to expire on 30 September 2021.

Will the Government Maintain the Current Position?

Nothing has been announced yet; but taking into account the recent announcements over commercial and residential possession and the fact that furlough is extended until September, the cautious observer is likely to conclude that the government is minded to extend the relevant period and support businesses effected by the pandemic.

Suspension of Wrongful Trading Provisions

Although the government has extended the relevant period with respect to statutory demands and winding up petitions, the suspension of wrongful trading provisions have now technically lapsed (since 30 June 2021). It is not clear if further regulations will be introduced to extend the suspension of wrongful trading liability for directors who continue to trade whilst insolvent, but with the opening of society and the economy set to occur on 19 July 2021, it may be that the government has decided that this aspect of its coronavirus response is no longer required.

Posted by:

Richard Chapman
Trainee Solicitor

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