End of Covid Restrictions under Corporate Insolvency and Governance Act on Issuance of Winding Up Petitions – Insolvency/Bankruptcy/Restructuring

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UK: End of Covid restrictions under Corporate Insolvency and Governance Act on issuing liquidation petitions

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1st April 2022 marks another notable event in the return to “normality”, this time for creditors, with the lifting of restrictions on the issuance of liquidation petitions.

For the first time since restrictions were introduced in June 2020 by the Corporate Insolvency and Governance Act 2020 (CIGA 2020) (exceptionally with retroactive applicability to liquidation petitions issued after 27 April 2020), creditors are no longer subject to the restrictions under CIGA 2020 on when a liquidation petition can be issued.

Those who have followed the series of articles published by members of 1 Chancery Lane1on the measures introduced by CIGA 2020 to prevent aggressive debt collection during the pandemic, will recall the different restrictions put in place at different times.

Creditors will no doubt welcome the renewed ability to petition for debts under £10,000 and the removal of the requirement to issue a 21-day notice requesting payment proposals. While the restrictions under the CIGA have been lifted, creditors owed money owed for commercial rent arrears should be mindful of the alternative restrictions under the Commercial Rents (Coronavirus) Act 2022 (CRCA 2022) . These came into effect on March 24, 2022. The 2022 CRCA restrictions continue to apply to bringing claims for “protected rent debts” and introduced an arbitration scheme to deal with such debts.

It remains to be seen whether nearly two years of enforced restraint will result in a change in behavior and a less regular use of liquidation petitions as a means of collecting debts. No doubt policy makers, and those who advocate that liquidation proceedings are a collective insolvency mechanism not to be used for the enforcement of debts, hope so.

More likely, councilors and those who remember the long delay between the issuance of petitions and the first hearing will want to issue quickly, lest this opening of the floodgates lead to long backlogs. Some may even have taken the approach of pre-emptively issuing legal requirements in the last 18 days before restrictions are lifted. Landlords and tenants representing part of the estimated £7billion accumulated rent debt will be monitoring the lifting of CIGA restrictions to identify how they might be affected when the 2022 CRCA restrictions stop biting.

The government and insolvency practitioners will likely watch with interest the outcome of the removal of restrictions, to see if this leads to the high volume of insolvencies predicted at the start of the pandemic but which have never yet materialized. The fact that a series of insolvencies will follow will be another indicator of the success of government support measures to protect businesses during the pandemic. If the restrictions applied are successful, it will undoubtedly be a good thing for the UK, but legitimate creditors with their own cash flow problems will regret that it came at their expense.

Footnote

1. A: https://1chancerylane.com/corporate-insolvency-and-governance-act-2020/

B: https://1chancerylane.com/breaking-news-government-seek-to-extend-moratorium-on-the-issue-of-statutory-demands-and-winding-up-petitions-prohibition-on-termination- clauses-and-modification-of-eligibility-for-the-new-moratoriumu/

C: https://1chancerylane.com/breaking-news-again-further-extension-of-coronavirus-protections-under-the-corporate-insolvency-and-governance-act-2020/

D: https://1chancerylane.com/out-with-the-old-temporary-in-with-the-new-temporary-issue-winding-up-petitions-from-1-october-2021/

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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