Further extensions announced to COVID Insolvency measures

A Menzies icon of the COVID-19 virus

“Kicking the can down the road.”

As expected, the Corporate Insolvency and Governance Act 2020 (“CIGA”) provisions have been extended further. They were laid before parliament and will come into force from 26 March 2021. These extensions now match the restrictions on forfeiture for landlords and align in part to the further extensions offered on the Furlough scheme to the end of September 2021.

The following CIGA measures will be extended:

  • The expiration date of the suspension of liability for wrongful trading will be 30 June 2021.
  • The exemption for small suppliers to the insolvency termination clause prohibition will extend until 30 June 2021.
  • The temporary moratorium rules remain until 30 September 2021.
  • The temporary suspension of the use of statutory demands and restriction on winding-up petitions will expire on 30 June 2021.

This demonstrates the Government’s continued support to UK businesses and afford a lifeline to their survival, but as the analogy above suggests, are we just delaying the inevitable?

Extensions may indeed continue further, if we look at the history of the suspension of the statutory demand and restriction on winding-up petitions, this was first set to 30 September 2020, then extended to 31 December 2020 and then to 31 March 2021. A lot will depend on any potential third wave, our resilience in coming out of this pandemic and returning to some type of normality.

By 30 June 2021, this will be the end of a 5th quarter with such measures in place and a lot of questions continue to arise such as, are we just piling up the debt, which at some point needs to be paid. The Insolvency profession anticipates that the level of insolvencies will increase when this Government support is toned down and we can only hope that good UK businesses are not brought down with those that perhaps should have failed prior to the pandemic.

What can be done in the short term for those collecting debts?

origami question

The CIGA does not restrict use of the administration process by creditors wanting their money, so a creditor could apply to Court to place the debtor company into an administration. However, there are many aspects to consider when adopting this course of action. It requires the administration to have an achievable purpose, an Insolvency Practitioner to consent to act as administrator, solicitors acting and a Court application, so delays may occur and costs will certainly be incurred.

The alternative will be that if no further extensions are forthcoming, then on 1 July to be ready to take the appropriate action to recover your debt.

For further information or to discuss your specific circumstances, please contact our business recovery team.

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