New temporary measures introduced to protect companies from creditor action

The Corporate Insolvency and Governance Act 2020 (CIGA 2020) came into force on 26 June 2020 and introduced a number of temporary measures to help protect companies affected by the lockdown restrictions during the pandemic. In this article, we look at these measures that were brought in to protect smaller companies from creditor action.

Measures brought in by CIGA 2020 included the relaxation of wrongful trading, restrictions on winding up companies and easements for entry into the new company moratorium. The measures were introduced with a view to ensuring that viable businesses affected by the restrictions on trading during the lockdown periods were not forced into insolvency unnecessarily. As the economy returns to normal trading conditions, the restrictions on creditor actions will be lifted.

We have published a series of articles looking at the various insolvency and restructuring measures introduced by CIGA 2020. An 'Ask ICAS' webinar was also held on 25 June 2020 to look at the changes in more detail.

After a number of extensions, the measures introduced by CIGA 2020 expired at the end of June 2021. However, the restrictions on winding up companies were extended by the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021, which came into force on 22 June 2021.

Those regulations extended the duration of the temporary measures restricting the use of statutory demands and winding up petitions until 30 September 2021.

New measures

The government has now announced that new measures are to be brought in to help smaller companies get back on their feet by giving them more time to trade their way back to financial health before creditors can take action to wind them up. This is intended to particularly benefit high streets, and the hospitality and leisure sectors, which were hit hardest during the pandemic.

The new legislation will:

• Protect businesses from creditors insisting on repayment of relatively small debts by temporarily raising the current debt threshold for a winding up petition to £10,000 or more.
• Require creditors to seek proposals for payment from a debtor business, giving them 21 days for a response, before they can proceed with winding up action.

These measures were introduced through a Statutory Instrument and covered England, Scotland and Wales. Northern Ireland implemented a similar legislation to mirror these measures, which was in force until 31 March 2022.