A moratorium on winding-up petitions does not amount to a bar on debt recovery actions

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:

 

1. Coronavirus has not had a financial effect on the [debtor] company; or
2. the ground (at Sections 122/123 Insolvency Act 1986) relied upon to present the petition (e.g., that the debtor cannot pay their debts as and when they fall due) would have arisen even if Coronavirus had not had a financial effect on the debtor company.

 

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.

 

If you are concerned over collection of debts / security enforcement and/or debtors seeking to rely on Covid 19 to avoid payment, please contact William Angas and Ben Ashworth.