A moratorium on winding-up petitions does not amount to a bar on debt recovery actions
It was only a matter of time before the Government would formally legislate to assist businesses dealing with the heightened risk of insolvency brought about by the Coronavirus Pandemic. That moment arrived on 20 May 2020, when the Government’s Insolvency and Corporate Governance Bill (the “ICG Bill”) was read in Parliament. The Bill is expected to receive Royal Assent and come into force in early June 2020.
Schedule 10 of the ICG Bill is significant for creditors, as it introduces a ‘moratorium in all but name’ on the issue of Winding-up Petitions until at least 30 June 2020. By the provisions in Schedule 10 of the ICG Bill, a creditor cannot issue a winding-up petition in the ‘relevant period’ (this being 27 April 2020 (the Bill will be backdated) to 30 June 2020 or, one month after the Bill’s coming into force, whichever is the later) unless, the creditor has reasonable grounds for believing that:
In practice, all but every debtor would argue that Coronavirus had had some form of negative “financial effect” on their business. This coupled with an essentially impossible (and very expensive) evidential burden on a creditor to show that Coronavirus has not financially affected the debtor, will result in an effective moratorium on winding-up petitions until at least 30 June 2020.
Creditors should bear in mind however, that the provisions in the ICG Bill do not amount to a complete bar on commencing debt recovery actions against corporate debtors. The various inexpensive, available tools for a debt recovery action, such as Letters of Demand for Payment and statutory demands, are still permitted. As too is issuing a County Court Claim. These tools are often just as effective as issuing winding-up petitions in recovering debts.
Our message therefore is that whilst the ICG Bill will for a short time limit creditors’ ability to issue a winding-up petition, it is still very much ‘business-as-usual’ in terms of creditors being able to take the initial and less expensive actions to recover debts.
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