The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020

Edward Judge and Jane Anderson look at the recent amendments to the Corporate Insolvency and Governance Act 2020 (“CIGA”).

CIGA came into force on 26 June 2020.

CIGA was generally considered as representing the most significant change to the UK’s insolvency regime in 20 years.

Ailsa Anderson has written about director’s legal duties previously before the CIGA came into force:

To ensure that companies were not put in an unfair position as a result of financial distress caused by the COVID-19 pandemic the CIGA provides temporary protections that were due to expire on 30 September 2020.

Some of the temporary protections CIGA provide (as at 24 September 2020) are that:

• Statutory demands served on a company during the relevant period, being 1 March 2020 to 30 September 2020 (“the Relevant Period”), cannot be used to found a winding-up petition presented to the Court on or after 27 April 2020 on the grounds that a company has failed to satisfy a statutory demand where the demand was served during the Relevant Period. This does not prevent the serving of a statutory demand however it does mean a winding up petition cannot be presented on the basis of one;

• A creditor should not serve a winding up petition on the basis of a company’s inability to pay its debts between 27 April 2020 and 30 September 2020 unless it has reasonable grounds for believing the debt issues did not arise as a result of coronavirus or would have arisen in any event;

• The Court is not able to grant an order in respect of a winding up petition presented after 27 April 2020 but prior to the commencement of the CIGA unless it is satisfied that the company’s financial position would have arisen regardless off the presence of coronavirus; and

• Winding up orders granted after 27 April 2020 but before 26 June 2020 (when the CIGA became law) are void if the Court would not have made the order if it had applied the CIGA in its consideration of the petition.

• The threat of making directors personally liable for the debts of their companies arising from wrongful trading (continued trading when the director knew or ought to have known that liquidation or administration was inevitable) was removed by temporarily suspending S214 of the Insolvency Act 1986.

Regulations extending some of the temporary measures introduced by the CIGA were laid before Parliament on 24 September 2020 and The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 will come into force on 29 September 2020.

The effect of the Extension Regulations are that the restrictions on the use of statutory demands and winding up petitions, which were due to fall away on 30 September 2020, are extended to 31 December 2020.

It is important to note that provided a winding up petition is validly presented, the Court can only grant that order if it is satisfied the company would have been insolvent regardless of coronavirus.

However the protection for directors from wrongful trading was not extended, it is therefore vital that, if they are in any doubt, directors think very carefully about taking further credit from banks or their creditors without taking professional advice.