Prohibition on issuing statutory demands and winding up petitions for Covid-19 related debts

The Corporate Insolvency and Governance Act 2020 introduces a range of temporary measures designed to support businesses and directors affected by the Covid-19 crisis.

In this alert we will take a closer look at the temporary prohibition winding up petitions.

These temporary changes restrict the formal action which creditors can take to recover debts owed. Creditors cannot present a winding-up petition based on a statutory demand that was served between 1 March 2020 and 30 September 2020, nor present a winding-up petition between 27 April 2020 and 30 September 2020 based on a company’s inability to pay its debts unless the creditor has reasonable grounds to believe that Covid-19 has not had a financial effect on the company, or that the company would have been unable to pay its debts even if Covid-19 had not had a financial effect upon it.

The threshold for what is considered a ‘financial effect’ due to Covid-19 appears to be low with the burden on the creditor to prove that Covid-19 has not had an effect on the company. Winding-up orders will be void if they do not meet this new Covid-19 requirement.

Essentially, in the period up to 30 September 2020 it will be necessary to consider recovering debts owed by companies by other means unless it is possible to demonstrate that a company would have been insolvent regardless of the Coronavirus pandemic.

If you have any queries, please contact our Dispute Resolution and Litigation team on 01228 552600 or 01524 548494.

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