The Corporate Insolvency and Governance Act 2020 (“CIGA”) introduced (amongst other things) various temporary insolvency measures intended to give businesses some protection from insolvency proceedings in the short term.
In particular, CIGA put in place the following:
· A prohibition on presenting Winding Up Petitions based on statutory demands served between March 2020 and 30 September 2020; and
· A prohibition on presenting Winding Up Petitions or making Winding Up Orders unless Coronavirus can be discounted as a reason for the inability to pay debts.
The prohibition on presenting Winding Up Petitions based on statutory demands has now been extended from 30 September 2020 to 30 December 2020, as has the prohibition on Winding Up Petitions or Winding Up Orders unless Coronavirus can be discounted as a reason for the inability to pay.
The Danger for Directors
The changes to CIGA 2020 relate to protection for companies from insolvency proceedings. There is no accompanying extension of the relevant period for section 13 of CIGA 2020 which covers the suspension of liability for wrongful trading. It appears that a company from now until the end of December 2020 will effectively be protected from winding up, but within that period the directors of that company could become liable for wrongful trading.
The suspension of wrongful trading for the period 1 March to 30 September 2020 will, presumably, continue to apply to claims brought following 30 September 2020, but as of 1 October 2020 directors will be liable once again. Between now and the end of the year there may be considerable scope for a wrongful trading for unwary directors lulled into neglecting their duties in recent months.
Hiding the Problem
It should also be noted that the protection from insolvency proceedings may be storing up problems for companies for the future. The amendment legislation (the Corporate Insolvency and Governance Act 2020 (Amendment of certain relevant periods) Regulations (Northern Ireland) 2020) sets out that the Department for the Economy considers it reasonable to make the Regulations so as to mitigate an effect of Coronavirus. In the short term, the prevention of companies being wound up because of temporary cashflow problems caused by Coronavirus is a laudable aim.
However, as time goes on, there must be some concern that the restriction on Petitions and Orders is not preventing insolvency but merely hiding an ongoing problem. There was already talk of a “cliff edge” coming at the end of the period that has now been extended until the end of December 2020, and the cliff edge concern is surely now all the greater.
There are a number of measures within CIGA 2020 which are extended until 30 March 2021, relating mainly to the provisions in relation to the moratorium available to debtors and to the temporary exclusion of small suppliers from the restrictions on terminating supplier contracts in the event of a customer’s insolvency.
Any company directors who have concerns about their company’s positon, or their own position, should seek advice without delay, either from an insolvency practitioner or their solicitor, or both. If you have any queries in this regard, please contact Philip Gordon at email@example.com or Sarah Burrows at firstname.lastname@example.org