The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 came into force on Tuesday, 29 September 2020. The Regulations extend some of the temporary provisions put in place by The Corporate Insolvency & Governance Act 2020 (“the 2020 Act”) which came into force on 26 June 2020. The 2020 Act aimed to support businesses affected by COVID-19 and the new Regulations are an acknowledgement that additional help over a more prolonged period is necessary in these unprecedented times.
The main extensions are as follows:
1. Statutory Demands and Winding Up Petitions – Measures extended to 31 December 2020
In short, creditors cannot proceed with a winding up petition on account of an outstanding statutory demand served between 1 March 2020 and 31 December 2020. A creditor can only present a petition for the winding up of a company if it has a reasonable belief that the company’s business has not been adversely affected by COVID-19 or that it would not have been able to meet the demand, regardless of the effects of the pandemic.
2. Termination by suppliers – exclusion for “small suppliers” – Measures extended to 30 March 2021
Under the 2020 Act suppliers are unable to terminate a supply contract solely on the basis of the other party to the contract entering into an insolvency process. This extension means that “small suppliers” (defined in the legislation as any entity that can satisfy 2 of the following criteria: (a) Turnover of less than £10.2 million; (b) Balance sheet total of less than £5.1 million; (c) No more than 50 employees), continue to be exempt from this prohibition on termination.
3. Company Moratorium for restructuring – Measures extended to 30 March 2021
A company can enter a moratorium, allowing Directors to retain control of the day-to-day running of the business while considering restructuring options.
4. Wrongful trading – No extension
The temporary suspension of directors’ liability for wrongful trading will end on 30 September 2020. Directors should therefore be very careful not to continue to incur liabilities in circumstances where there is no reasonable prospect of the company avoiding an insolvency process.
How can we help?
If you have any queries in relation to The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020, please contact Leon Breakey or another member of our Commercial Dispute Resolution team.
This article was co-written by Michael Gallagher.