21/07/2020

The (other) perils of COVID-19 – Thursfields Solicitors

STEPHEN ROME

The Coronavirus has had a devastating impact on human life and torn through the UK economy as quickly as the Australian bushfires we witnessed earlier in the year. In order to address the impact on the economy the UK government have been quick to rush through two pieces of legislation to provide support to businesses – the Coronavirus Act and the Corporation Insolvency and Governance Act (CIGA).

The Coronavirus Act provided protection to tenants by suspending a Landlord’s right to forfeit a lease and this protection was recently extended until September 30 2020. Some Landlords sought to by-pass the protection provided by the Act by looking at alternatives including procedures under the Insolvency Act  including serving statutory demands (for the unpaid rent) followed by winding-up petitions.

That action (alongside others) was one of the reasons for CIGA which introduced temporary legislation that prevented a winding up petition being started where it is based on a statutory demand served between 1 March 2020 and 30 June 2020. Landlord and unpaid creditors (and their solicitors) unaware of this legislation have been caught out where a number of companies have relied on CIGA to stop the creditor from presenting a winding up petition or meeting the presentation of an issued petition with an application to restrain. Nothing has also changed that where there is a genuine dispute the company can dispute a creditor’s entitlement to pursue a petition.

A further hurdle to prevent a creditor from using the insolvency procedure to wind up a company is that the creditor will need to show that Coronavirus has not had a financial effect on the company or if it did have an effect the company would still be unable to pay its debts, even if Coronavirus did not have a financial effect on the company. Recent cases suggest this is a low threshold for the company to meet (made easier if it can present financial evidence of before and after the lockdown occurred).

Finally CIGA also provides a mechanism to void winding up orders made in the period.

The two Acts have largely had the desired effect with a noticeable downturn in the number of instructions to prepare forfeiture notices and statutory demands/winding up petitions. However we have had to advise  when the restrictions put in place by CIGA have not been  followed. Whilst the suspension is in place there are other avenues to pursue including looking at whether claims can be made where directors may have provided guarantees in respect of the company’s payment obligations or beginning Court proceedings to obtain a judgment so that the insolvency procedure can be used appropriately as any liability is no longer disputed.

Please contact Stephen Rome on 0121 726 8782 or srome@thursfields.co.uk if you are affected by any issues raised in this article.

STEPHEN ROME

Stephen Rome,

Director, Dispute Resolution

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