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Tapering of CIGA restrictions on use of winding up petitions

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10 Regulations 2021) (the “Regulations”) will modify CIGA by extending certain restrictions on the use of winding up petitions, albeit on a more limited basis, in line with the tapering of government support measures introduced to combat the economic impact of COVID-19.

From 1 October 2021, the prohibition on issuing winding-up petitions based on an unpaid statutory demand will no longer apply. Instead, during the period 1 October 2021 to 31 March 2022 (the “relevant period”), creditors will be able to issue winding-up petitions on the basis of a company’s inability to pay its debts provided each of the below conditions is satisfied.

Condition 1: the debt is for a liquidated amount which has fallen due for payment and is not an “excluded debt” (on which see below).

Condition 2: the creditor has made a formal request (containing certain prescribed information) to the company seeking proposals for the payment of the debt.

Condition 3: the company has not made a proposal that is to the creditor’s satisfaction within 21 days beginning with the day the formal request was delivered.

Condition 4: the debt is £10,000 or more, or, where the petition relates to two or more debts, the total amount of all of the debts taken together is £10,000 or more.

The court has the power to waive Condition 2 or to shorten the period specified in Condition 3.

The Regulations attempt to strike a balance between debtor and creditor interests. The blanket prohibition on issuing winding-up petitions on the basis of unpaid statutory demands will fall away, but during the relevant period additional requirements (over and above those in the Insolvency Act 1986) will limit how and when winding-up petitions can be issued. In particular, Condition 2 should ensure that the debtor has an opportunity to make a proposal in relation to the payment of its debt (not presently required) and Condition 4 significantly increases the present financial threshold of £750. These amendments will be of most relevance to small businesses since larger businesses would  ordinarily (though not always) have some form of negotiation with overdue creditors before winding-up proceedings are issued and the £10,000 floor, whilst a significant increase, is not a significant sum for a larger business.

The Regulations also provide that, during the relevant period, winding up petitions cannot be brought in respect of a commercial rent debt (an “excluded debt”) unless the creditor can prove that the non-payment of the debt is not related to the pandemic. This is intended to allow time for the implementation of a rent arbitration scheme through primary legislation in line with Government announcements in this regard. On this, see our previous post Relief for tenants and CIGA extended - yet again 

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restructuring and insolvency, tom mckay, alexander wood
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