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New temporary measures introduced to protect companies from creditor action

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Steven Wood By Steven Wood, Practice Support Specialist (Insolvency)

9 September 2021

  • Measures restricting the use of statutory demands and winding up petitions are due to expire on 30 September 2021.
  • New temporary measures are being introduced to raise the debt threshold for a winding up petition to £10,000 or more.
  • And to require creditors to seek proposals for payment before they can proceed with winding up 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 new measures to be 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.

ICAS 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.

The new measures will be introduced through a Statutory Instrument and will cover England, Scotland and Wales. Northern Ireland will implement similar legislation to mirror the measures, which will be in force until at least 31 March 2022.


Subscribe to the ICAS Insolvency Technical Update

Corporate Insolvency and Governance Act 2020

Find out more about the Corporate Insolvency and Governance Bill.

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