Covid-19 insolvency restrictions have come to an end

The Insolvency Service has announced that from 31 March 2022 the temporary insolvency measures applied during the pandemic under the Corporate Insolvency and Governance Act 2020 (CIGA 2020) will expire. This means that from now, over two years since the first lockdown, creditors can enjoy pre-Covid-19 enforcement rights for the recovery of undisputed debts.

However, commercial landlords should note that restrictions on winding up and bankruptcy petitions concerning commercial rent arrears arising from the impact of the pandemic continue to apply under the Commercial Rent (Coronavirus) Act 2022.

What happened during the pandemic?

In June 2020, the Government introduced a number of temporary measures to assist businesses during the pandemic and to avoid mass insolvencies.

At its inception, CIGA 2020 prevented a creditor from presenting a winding up petition relating to debts between 1 March 2020 and 30 September 2020 unless:

• A creditor could put forward reasonable grounds to believe Covid-19 had no financial effect on the debtor; or
• A creditor could demonstrate that the debtor would not have been able to pay its debts notwithstanding the pandemic.

These temporary measures have been extended or diluted (as restrictions relating to the pandemic have been lifted generally) on a number of occasions. Most recently, an easing of restrictions introduced in October 2021 allowed a creditor to present a winding up petition on the basis that certain conditions were met, including the fact that the debt needed to be in excess of £10,000 (compared with the usual £750 threshold for companies) and a supplementary notice was served alongside the Statutory Demand seeking proposals for payment within a 21 day period.

What will happen now?

On 31 March 2022, these temporary measures will expire. Creditors will no longer need to demonstrate that non-payment is unrelated to the effects of Covid-19 and will not need to serve a formal notice to allow the debtor 21 days to consider satisfactory payment proposals.

The threshold debt of £10,000 will also no longer apply and winding up petitions can now be issued on debts of at least £750.

What does this mean for businesses?

Creditors will once again be able to make full use of Statutory Demands as a method of swiftly establishing a debtor’s inability to pay undisputed sums owed and proceed to issuing a winding up petition for the liquidation of the debtor and its assets in the usual way.

Given CIGA was designed to provide businesses with some breathing room during the financial struggles of the pandemic, businesses who have not yet navigated their way back to pre-Covid-19 levels of financial viability may find themselves particularly exposed if their creditors have been holding-off on taking steps to recover sums due.

Debtors will also no longer be able to delay restructuring their debts and will be encouraged to enter into a dialogue with creditors.

Please contact us if you have been waiting to collect unpaid and undisputed debts from creditors during the pandemic. Our expert team will be able to advise on the best options for recovery of your debts.