Elaine Elder and Giorgio Ventisei look at the further recent changes introduced by the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (the Regulations”).
Since June 2020, businesses have enjoyed protection under the Corporate Insolvency and Governance Act 2020 (CIGA 2020). Schedule 10 of CIGA 2020 provided that creditors of apparently insolvent businesses could only petition the court to appoint liquidators where there was a reasonable belief that the company had not been financially impacted by Coronavirus.
The Regulations dispose of these rather ambiguous conditions and replace with fresh, more robust protections for struggling businesses faced with liquidation proceedings.
From 29 September 2021, creditors seeking to present a Winding- Up Petition at Court now no longer require to satisfy the “Coronavirus test” but instead will require to navigate the following:-
- The debt due must be liquid, must have fallen due for payment and must not be an “excluded debt” (such as commercial rent arrears or any other sum due by a tenant under a lease);
- The creditor must have issued a written 21 day notice to the company stating that a Winding- Up Petition will be lodged at court upon its lapse and inviting creditor proposals for resolution;
- No satisfactory proposals to the 21 day notice has been received; and
- The sums due must be £10,000.00
The changes come as a stark departure from the traditional tools available to creditors, particularly in Scotland. The Regulations appear to dispose of creditors’ ability to serve a “short- form” demand for payment per the Scots case of Blue Star Security Services (Scotland) Ltd 1992 SLT (Sh Ct) 80. The Regulations also cast doubt on whether a lapsed Charge for Payment will continue to define insolvency.
From a business protection point of view, the replacement restrictions will be welcomed, particularly by start- ups and SMEs who are to be faced with choppy waters in the coming months. The new regulations also promote a more collaborative approach to potential insolvency scenarios which may well lead to a more time and cost effective resolution of disputes. Conversely, creditors will feel that the changes are prohibitive, creating uncertainty for those with entitlements under £10,000.00, a relatively high figure in tough trading conditions.
Only time will tell whether the Government’s new protections strike the right balance between protecting businesses in distress and allowing creditors to enforce their rights. No matter how the market reacts to the changes, the Dispute Resolution Team at Aberdein Considine are on hand to provide businesses with essential advice and assistance.