- The Corporate Insolvency and Governance Bill: temporary changes to winding up petitions.
The Corporate Insolvency and Governance Bill: temporary changes to winding up petitions.
The Corporate Insolvency and Governance Bill: temporary changes to winding up petitions.28th May 2020 - Published by
The Corporate Insolvency and Governance Bill has its second and third reading in the House of Commons on 3 June 2020; it goes to the House of Lords after and assuming it passes, will likely become law at some point in early June 2020.
The Bill introduces a number of permanent changes to the restructuring and insolvency landscape. The most important of these is to introduce the moratorium that a company can apply for to give it payment holidays in respect of certain liabilities. If a company obtains a moratorium, creditors will not be able to enforce for any pre-moratorium debts subject to payment holidays.
It also seeks to make a number of temporary changes to govern the position with winding up petitions. The Government’s press release dated 23 April 2020 said that it would legislate in a number of areas; the key quotes from that press release noted that the Bill would regulate the use of Commercial Rent Arrears Recovery and included:
- “Statutory demands and winding up petitions issued to commercial tenants to be temporarily voided…”
- “The government will temporarily ban the use of statutory demands and winding up orders where a company cannot pay their bills due to coronavirus, to ensure they do not fall into deeper financial strain.”
- “Landlords and investors asked to work collaboratively with high street businesses unable to pay their bills during COVID-19 pandemic.”
The Bill is significantly different. For a start, there are no provisions within the Bill on CRAR. Secondly, there are no provisions regulating bankruptcy petitions: individual tenants or guarantors can still be pursued.
The Bill prevents petitions from being issued after 27 April 2020 on any statutory demand served between 1 March 2020 and the date one month after the Bill comes into force. The context of the statutory demand is irrelevant.
However, this is something of an irrelevance in itself; to wind a company up on the ground that the company is unable to pay its debts, a creditor merely has to show that the company is either unable to pay its debts as they fall due, or that it is just and equitable for the company to be wound up. So winding up petitions can still be issued.
For any petition presented in the relevant period (between 27 April 2020 and the date one month after the Bill comes into force), a creditor can only issue a petition if it has reasonable grounds for believing that:
(a) coronavirus has not had a financial effect on the company; OR
(b) the relevant ground would apply even if coronavirus had not had a financial effect on the company.
Importantly, this is either/or. Petitions can still be issued even where coronavirus is in play, if the circumstances would have happened anyway. However, an extra layer of cost will be introduced: a petition has to be advertised to bring it to the attention of other creditors and banks; advertisement will not be possible until the court has considered this issue.
The first case since the April press release where this was considered was Shorts Gardens LLP v London Borough of Camden Council. Based on that case, I would recommend anyone seeking to rely on the provisions (in particular a debtor) to be able to justify their reliance with provision of financial evidence.
Whilst the Bill is not yet in force, it is clear that the court will take it into account. The Bill will also have retrospective effect. A petition issued now will certainly be heard after the Bill has come into force.
Overall, the Bill is substantially different from the press release in many ways. If you are considering initiating winding up petitions, or concerned about the threat of receiving one from a creditor, it is very important to get evidence together to support your position in advance and assess the risks. Note that costs will increase.
If you are considering initiating winding up proceedings, the purpose of the Corporate Insolvency and Governance Bill is stated as “A Bill to make provision about companies in financial difficulty…”; court sympathies may well be with debtors on application of discretion given to it both generally and under the Bill. Ultimately, it must be remembered that notwithstanding the Bill there is discretion on the court under the Insolvency Act: A company may be wound up by the court if… at the best of times, a winding up order cannot be guaranteed.
If you would like advice on anything mentioned above, please contact Richard Palmer on 0161 503 2996 or email firstname.lastname@example.org.