Thirsk Winton LLP

Breathing Space on Insolvency Measures

Important news for struggling businesses arrived in early December in the form of an extension to temporary reliefs from certain statutory enforcement measures available to creditors until 31 March 2021. Craig Kelly, associate solicitor in our commercial team, examines the announcement in more detail.

The Corporate Insolvency and Governance Act 2020 Act came into force on 26 June 2020 and brought with it some welcome relief for business owners struggling to meet their overheads following the initial lockdown period induced by Covid-19. The temporary suspension of statutory demands and winding up petitions was previously scheduled to end on 31 December 2020 but has now been extended until spring 2021.

So what does this mean for businesses and their creditors?

Suspension of Statutory Demands

The suspension of use of statutory demands (a written notification of a debt being payable triggering a twenty one day payment period) has hampered the ability of creditors to “focus the mind” of their debtor by placing them on a strict timescale with a real prospect of enforcement including bankruptcy for personal debt and winding up for corporate entities.

Whilst, however, that statutory regime is temporarily unavailable the creditor may still make contact with the debtor and clearly set out the outstanding sum and terms for payment. Communication is critical here and a well judged letter or email to the debtor is often enough to invoke a positive response.

Suspension of Winding Up Petitions

A common course of action for creditors who have served a statutory demand without response is to submit a petition for “winding up” the debtor company to the court. This, if the debtor has ignored the creditor to date, is often the definitive act which causes the debtor to respond and enter into communication for settling the debt. Without this option, creditors are left waiting until April 2021 or forced to take debt recovery action in the county court (a potentially long exercise which, even if judgment is successfully obtained, may not result in payment).

This announcement is, therefore good news for debtors in the short term but they should be aware the suspension period is finite and creditors, given the likely shortfall in revenue they may have suffered in the intervening period, will be doubly keen to pursue the matter in April.