On 25 June 2020, the Corporate Insolvency and Governance Bill received royal assent and became law on 26 June 2020 (the “Act”).

The legislation has been fast-tracked through Parliament and contains several temporary measures intended to relieve the burden on businesses across the UK in the wake of the COVID-19 pandemic so that businesses can focus on continuing to operate.

CIGA provides the most significant changes in corporate insolvency law for nearly 20 years and aims to provide companies with the breathing space and flexibility needed to continue trading during these difficult times.

Gateway Moratorium

The Act introduced a new ‘gateway’ moratorium intended to provide companies with statutory breathing space from creditors while an assessment of the viability of a rescue is considered.

To obtain a moratorium, company directors must complete the relevant documents at Court. The document must include the director’s views on whether the company is, or is likely to become unable to pay its debts. There must also be a statement from an Insolvency Practitioner (the ‘’monitor’’) stating that in their qualified opinion the company is eligible and that the moratorium would result in the rescue of the company.

The Court’s permission to obtain a moratorium will be required if a company has an outstanding Winding Up Petition.

Creditors of the company can apply to the Court for relief on the grounds that the company has been managed in a way that damages their interest.

Statutory Demands and Winding Up Petitions – Covid-19

During the period 27 April 2020 to 30 September 2020, a creditor cannot present a Winding-Up Petition, unless it has reasonable grounds to believe that either Covid-19 has not had a financial effect on the company, or that the company was unable to pay its debts regardless of any financial effect of coronavirus, rather than the national lockdown. The Court can order the Winding Up of a company if they are satisfied that the relevant ground relied upon would have applied even if coronavirus had not had any financial effect on the company.

In addition, CIGA prohibits reliance upon Statutory Demands served between 1 March 2020 and 30 September 2020 as a basis to present a Winding-Up Petition.

These provisions are “to be regarded as having come into force on 27 April 2020”. Further, any winding-up orders that have already been made for debt claims since 27 April 2020 and 24 June 2020, could be made automatically void if the Court considers that the criteria set out above was not satisfied. The Court could order that the Company is automatically restored to the register. The relevant periods set out in CIGA can be extended or shortened by up to 6 months.

New Insolvency Practice Direction

The new Practice Direction sets out a substantial change in relation to the listing and hearing of winding-up petitions. The new procedure relates to any petition presented between 27 April to 30 September 2020.

The petition must contain a statement of the petitioner’s reasonable belief that the financial position has not been altered by (i) coronavirus has not had a financial effect on the company; or (ii) that the company would have become unable to pay its debts even if coronavirus had not had a financial effect on the company

The petition must also state the grounds that will be relied upon to enable to Court to make the Winding Up Order.

Pre-Trial Review upon presentation of the Petition:-

The Petition is listed for a 15-minute non-attendance Pre-Trial Review on the first open date 28 days after of presentation.

A listing certificate must be filed and served at least 2 days before the Pre-Trial Review.

If the Petition is not opposed and the Court is satisfied that a Winding Up Order is likely to be made, the court will order the Petition to be listed in the winding-up list. If listed then the advertisement and usual rules continue to apply.

The Court may make other directions including listing the matter for a preliminary hearing.

If the matter is listed for a Preliminary Hearing:-

The Court will determine whether it is likely that the criteria set out above have been met and if it will be able to make a Winding Up Order.

If the Court decides against the evidence provided then the Petition will be dismissed.

If the Court decides that a Winding Up Petition is likely to be made, the Petition will be listed in the winding-up list. The usual rules pertaining to Advertisement and onwards will apply.

The Petition remains private unless the Court orders otherwise except for service upon the Respondent.

The Petitioner must file and serve on the company a Witness Statement at the same time as the Petition.

The Respondent can file and serve evidence in response within 14 days of service of the Petition.

If you would like more information on the contents of this article, or on commercial litigation, Insolvency or Debt Recovery in general, please contact Jackie Ray at jar@blasermills.co.uk