New restrictions contained in the Corporate Governance & Insolvency Act 2020 now in force severely impact the steps creditors can take to get payment of an undisputed debt owed by a company.
Creditors cannot now use statutory demands to threaten that a company will be wound up if it does not pay what is owed. This is because any statutory demand made between 1 March 2020 and 30 September 2020 will be void.
You can still issue court proceedings and obtain a court judgment against the company. However, even then you could be in difficulties in enforcing that judgment, as a creditor cannot present a winding-up petition against a company between 27 April 2020 and 30 September 2020 unless it reasonably believes that the company’s inability to pay its debts is not the result of coronavirus. Even if the creditor does believe this, the court will not make a winding-up order unless the creditor can demonstrate that the pandemic is not the reason the company cannot pay its debts, and it is likely to be difficult to do this. Also, the presentation of the petition will not be advertised or publicised in advance of the hearing until the court has concluded that it is likely that the pandemic is not the reason the company cannot pay its debts.
There are other ways of enforcing a judgment, such as executing against the debtor’s goods, or applying for a third party debt order against company money held by a third party, or applying for a charging order. However if the debtor company has entered into a new moratorium introduced by this Act, then no legal action (including any enforcement steps) can be taken against that company without leave of the court until the moratorium has ended. The moratorium is only for an initial period of 20 business days, however, although it could be extended by a further 20 business days. Further extensions can be granted, but this would require the consent of creditors.
If you would like information about other aspects of the Corporate Insolvency & Governance Act then you may find these other articles of interest:
- Insolvent customer? Supplier beware! - it is important to note that suppliers can no longer terminate contracts, refuse to supply goods or services or amend payment terms with an insolvent customer due to its insolvency, except for the limited circumstances which are covered in this piece.
- Sweet 'Midsummer night' dreams? - on landlord and tenant issues.
- Corporate Insolvency & Governance Bill 2019-2021: the insolvency changes you need to know about - a pre-enactment overview.
Laura Beagrie