UK government braces for end of temporary insolvency measures

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The government introduced the Insolvency and Corporate Governance Act 2020 (CIGA) in June 2020, prohibiting creditors from responding to legal demands and making liquidation requests for coronavirus-related debts. The restrictions were originally in place until September 30, 2020, but have been repeatedly extended until September 30, 2021.

Before the restrictions finally came to an end, the government introduced the 2021 Regulation of the Insolvency and Corporate Governance (Coronavirus) Act (amendment to Schedule 10). The regulations are intended to give small businesses more time to negotiate before creditors can take action. to reassemble them.

Although there are no longer restrictions on the presentation of statutory claims, such as under CIGA, from October 1, 2021 to March 31, 2022, the threshold for submitting a claim for liquidation will increase from £ 750 to 10,000 £. It will be possible for more than one creditor with a total aggregate debt of £ 10,000 or more to apply for liquidation.

Creditors should write to a company asking them to submit their debt repayment proposals within 21 days. If the company does not make proposals to the satisfaction of the creditor, then the creditor can submit a request for liquidation.

A creditor can ask the court for permission not to write to a business or to give a business less than 21 days to make repayment proposals.

The application for liquidation must contain a statement confirming that the regulations have been complied with.

However, the regulations do not change the sections of the Insolvency Act 1986 dealing with the disposition of assets between the filing of a petition for liquidation and the date of the liquidation order. This means that from October 1, 2021, banks will be likely to consider freezing corporate bank accounts as soon as they become aware of a liquidation position.

The provisions suspending liability for illicit transactions expired on June 30, 2021, reassuring creditors that directors should only continue trading if they do not deteriorate the company’s financial position.

Insolvency law expert Joanne Gillies of Pinsent Masons, the law firm behind Out-Law, said: Petition closed.

“Particularly if there is evidence of the dissipation of assets, a creditor may not be able to wait 21 days for the debtor’s proposals, and an interim liquidator appointment will be required immediately,” said Gillies.

“Fortunately, judges have the discretion to waive this condition, but it remains to be seen what criteria they apply in deciding to do so,” said Gillies.

The regulations also affect business owners, who have effectively been deprived of the power to take action if rent has not been paid during the pandemic.

In England, commercial landlords currently cannot terminate leases due to non-payment of rent and cannot exercise the collection of arrears of commercial rents until March 25, 2022. In Scotland, the irritation notice period in the framework of commercial leases is extended to 14 weeks until March 31. 2022.

The by-law prohibits a landlord from bringing an application for liquidation relating to “a rent or any sum or other payment that a tenant is obligated to pay” under a commercial lease that is unpaid by reason of a financial effect of the tenant. coronavirus until March 31, 2022.

In June, the government announced that it plans to legislate to contain the Covid-related rent arrears that have accumulated as a result of trade restrictions on businesses and to introduce a binding arbitration system for landlords and owners. tenants who cannot reach a negotiated agreement. settlement in terms of payment.

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