As part of the Government’s loosening of the legislation introduced as a result of the coronavirus pandemic, the temporary provisions put in place to give breathing space to companies from the threat of a winding up petition expire 30 September 2021.
These provisions were within the Corporate Insolvency and Governance Act 2020 (“CIGA”) and designed to allow businesses impacted by the COVID-19 pandemic to have breathing space from the threat of winding up action. Those restrictions expire on 30 September 2021. However, in recognition of the fact the financial effects of the pandemic remain the restrictions are not falling away completely.
Between 1 October 2021 and 31 March 2022 new temporary provisions are being introduced under the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (the “CIGA Schedule 10 Regulations”).
It is envisaged that the CIGA Schedule 10 Regulations will provide continued support to viable businesses and at the same time provide for a return to the normal procedure albeit with some temporary checks and balances in place.
Statutory demands will return but the new temporary restrictions will prevent commercial landlords presenting winding up petitions in relation to ‘commercial rent arrears built up during the pandemic’ unless it can be shown that the reason for non-payment is unrelated to the pandemic.
Anyone wishing to issue a winding up petition will need to be able to satisfy certain conditions:
A) The debt owed must be for a liquidated amount, which has fallen due for payment and is not an ‘excluded debt’
B)The creditor has delivered written notice to the debtor company which:
- Identifies the debtor
- Gives the full details of the creditor
- Details the amount of the debt and how it arose
- A statement that the creditor is seeking the debtor’s proposals for payment of the debt, and
- A statement that if no proposal is made to the creditor’s satisfaction within 21 days, beginning on the date on which the notice was delivered the creditor intends to present a winding up petition to the Court.
C) At the end of the 21 day period since the Condition B Notice was delivered and the company has not made an acceptable proposal for the payment of the debt.
D) The debt owed to the creditor (or a group of creditors) is at least £10,000.
Under condition A the debt must not be an excluded debt. An “excluded debt” is a debt in respect of rent, or any sum or payment that a tenant is liable to pay, under a relevant business tenancy (for England and Wales) or under a lease as defined by the Law Reform Act 1985 (for Scotland) which is unpaid by reason of a financial effect of the coronavirus.
Financial effect of the coronavirus?
It therefore appears that generally landlords will be unable to use winding up proceedings against tenants in relation to any rent arrears which built up during the pandemic until at least 31 March 2022. Any landlord looking to present a winding up petition can still do so if they can show that the pandemic had no financial effect on the debtor’s ability to pay. This will be a high evidential burden and the Courts have previously applied a low threshold when deciding whether a debtor is able to prove that coronavirus has had no financial impact when applying the ‘coronavirus test’.
This new procedure does not prevent or restrict the service of statutory demands, although this would not prevent service of a statutory demand resulting in an application to restrain the presentation of a petition. The new provisions do appear to give a great deal of scope for litigation and there should be wariness in making bare assertions without supporting and corroborating evidence to support the position being advanced.