18 December, 2020
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No2) Regulations due to come into force on 31 December 2020, further extend the temporary prohibitions on winding up petitions based on statutory demands and the restrictions on winding up petitions and orders to 31 March 2021, unless there are specific circumstances.
Insolvency has often been used as a tactic to claw back debts and the aim is to prevent this aggressive tactic being used. Whilst statutory demands against individuals can be potentially set aside, for example if there is a dispute with the debt, the same option is not available for companies. This often means that companies pay the debt simply to avoid a petition being brought against them.
The extension is clearly good news for those businesses struggling with cash flow in the light of COVID, but poses difficulties for creditors who are owed undisputed debts who would ordinarily use the low cost tool of a statutory demand to put pressure on debtors who simply aren't paying.
If you are a creditor then there are still options for you if you want to recover money due. Your debt may fall under the COVID exemptions. So, if you can establish that COVID hasn't had a financial impact on the debtor then you could still pursue insolvency. For example, businesses like supermarkets have boomed during COVID so they could not say that COVID has had a financial impact on them. The other exemption is that relevant grounds under the Insolvency Act would still apply even if COVID had a financial impact under the company. For example, if you have an unsatisfied judgment pre-March 2020 then you would argue that it was due pre-COVID or that even with COVID the same grounds would have applied, e.g. such as unsatisfied CCJ.
You can also still issue proceedings against a debtor and if your debt is £10k then your costs will be recoverable in the event of a win. This takes out the risk of having to debate if the Court will consider that your case is an exemption to the Insolvency COVID rules.
If you have debts that you wish to pursue or alternatively you have been faced with a statutory demand or a petition that you wish to challenge then please call Forbes to see how we can assist.