As we are all aware, various temporary measures have been put in place in the course of the last year to protect businesses from insolvency by offering them breathing space during the Coronavirus pandemic. One of these measures was a temporary one introduced under Schedule 10, Part 2 of the Corporate Insolvency and Governance Act 2020 (“CIGA”) which provides that creditors may not – during a certain period – present a petition for the winding up of a registered company on the basis that the company is deemed unable to pay a debt owed, unless the creditor has reasonable grounds for believing that either:
- coronavirus has not had a financial effect on the company, or
- the action would have arisen even if coronavirus had not had a financial effect on the company.
While there’s a lot to know about this act, we’ll give you a top 5 takeaways regarding CIGA and its extension:
1. What do the CIGA restrictions do?
While this act is active, creditors may not present a petition for the winding up of a registered company on the basis that the company is deemed unable to pay a debt owed, unless the creditor has reasonable grounds for believing that either:
- coronavirus has not had a financial effect on the company, or
- the action would have arisen even if coronavirus had not had a financial effect on the company.
2. How do the CIGA restrictions help Businesses?
This measure was introduced to offer protection to businesses where their creditors were looking to wind them up on the basis that they were unable to pay their debts. It may help companies which have suffered financial harm that is solely attributable to Covid. This could be due to, for example, a loss of orders or reduced footfall due to Covid restrictions, or losses on perishable stock that expired during government mandated lockdowns.
3. What do the CIGA restrictions *NOT* Cover?
If a business debt was incurred and unpaid long before early 2020, this may be an indication that the action would have arisen even if Coronavirus had not had a financial effect on the relevant company.
4. Why have the CIGA restrictions been Extended?
The above rules were initially due to end in June 2021, however a recent Government announcement confirmed that regulations are due to be set down extending these restrictions until 30 September 2021. On the extension, Minister for Corporate Responsibility, Lord Callanan, commented:
“We’re extending these important measures to give businesses the extra breathing space they need as we cautiously reopen the economy and look to build back better from the pandemic…
“With the threat of aggressive creditor action and insolvency eased, companies will be able to focus all their efforts on their recovery.”
5. Can I pursue Liquidation Actions despite the CIGA restrictions?
Whilst the CIGA restrictions will prevent some liquidation actions from proceeding, it is important to bear in mind that there is by no means a blanket ban on liquidation proceedings. Creditors still have enforcement rights, as long as they can prove the debtor’s issues are not caught by the CIGA provisions. If the “Coronavirus test” cannot be passed, however, options available to creditors will be more limited. The Court will need to be satisfied that the grounds contained within CIGA are satisfied, however. In order to do so, practitioners should ensure that the Petition being lodged at Court clearly states the position.
The Big Message: You can still pursue a claim under CIGA
Many have interpreted the legislation to mean that the remedy of winding up is currently unavailable to creditors, however the right to make such applications to court is not lost. Even with the extension of the CIGA restrictions, it is still possible to pursue claims and get back money that your business is owed. If you or your company is considering progressing a liquidation action, please contact us.
