UPDATE 29 September 2021 – An error was spotted in the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021. They have been replaced with effect from 28 September 2021 by the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021. The error was not in the substance of the replaced Schedule 10, which is identical in both sets of Regulations, and the commentary below is still applicable.
On Thursday 9 September 2021, the Insolvency Service announced that the temporary insolvency restrictions protections are being lifted and new targeted measures to support small business and commercial tenants introduced (link).
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021 (‘Regulations’)
The Regulations substitute the current Schedule 10 contained in the Corporate Insolvency and Governance Act 2020, which applies to E&W and Scotland. The new schedule/temporary measures will restrict winding up petitions from 1 October 2021 to 31 March 2022.
Key points to note –
- A creditor may not present a petition for the winding up of a company under s.124 of the Insolvency Act 1986 (‘IA86’) on the ground specified in –
- Registered company – s.122(1)(f) IA86
“Circumstances in which company may be wound up by the court.
(1)A company may be wound up by the court if–
(f)the company is unable to pay its debts, …”
- Unregistered company – s.221(5)(b) IA86 “
“Winding up of unregistered companies.
(5)The circumstances in which an unregistered company may be wound up are as follows–
(b)if the company is unable to pay its debts; …”
- UNLESS conditions A to D contained in the Regulations are met, which includes –
- the outstanding amount being £10,000 or more; and
- creditors must now seek repayment proposals from debtor businesses in writing, with those businesses given 21 days to respond before the creditor can present a winding up petition.
- Creditors may apply to the Court for an order waiving or shortening that 21 day period.
- Condition A prevents a petition being presented by a creditor if it falls within the definition of excluded debt, which is as follows –
“excluded debt” means a debt in respect of rent, or any sum or other payment that a tenant is liable to pay, under –
(a) in England and Wales, a relevant business tenancy; or
(b) in Scotland, a lease as defined in section 7(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985(a),
and which is unpaid by reason of a financial effect of coronavirus;”
This condition makes it clear that “excluded debt” is not restricted to “rent”, which therefore prevents a landlord presenting a petition on the basis of £10,000 of service charges, which are likely to have accrued.
- Other temporary measures restricting the benefit of statutory demands and the disapplication of the post-petition disposition rules will fall away from 1 October 2021.
- The Regulations do not make it clear whether the court is expected to take its own independent view as to whether the creditor has unreasonably rejected an offer by the debtor company as to repayment terms. Although the making of a winding up order is ultimately discretionary, to date that discretion has been very narrowly exercised. If the debt is due and unpaid, and insolvency is demonstrated by one of the s.123 IA86 routes, the starting point and usually the finishing point before now has been that the petitioner is entitled to his or her winding up order as a matter of right.
A couple of FAQs raised by members –
1. Is my understanding correct that no winding up petitions can be presented for any commercial rent arrears – not just those built up in pandemic? Also, what is the position on ‘service charges’?
The sum is “unpaid by reason of a financial effect of coronavirus” so is not specified as having had to fall due in any particular period, but if it was already due and unpaid before March 2020, the tenant may struggle to bring it within scope of the Regulations.
2. Will the 21 day proposals period be able to run in parallel with a stat demand 21 days, or must it go before, hence giving 42 days?
The Regulations determine that creditors must now seek repayment proposals from debtor businesses in writing, with those businesses given 21 days to respond before the creditor can present a winding up petition. It appears that the 21 days enquiry as to repayment proposals can run in parallel with a statutory demand, although there is no actual requirement for a statutory demand as the petitioner can rely on s123(1)(e) IA86 (“other evidence”) to demonstrate insolvency (or indeed s123(1)(b) / (c)) IA86.
Northern Ireland
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 11) Regulations (Northern Ireland) 2021 (Link)
These regulations substitute the current Schedule 11 contained in the Corporate Insolvency and Governance Act 2020, which applies to Northern Ireland. The new schedule/temporary measures will restrict winding up petitions from 1 October 2021 to 31 March 2022 in keeping with the E&W and Scotland Regulations.