Winding-up petitions in Covid-19 – navigating the new obstacles

The Corporate Insolvency and Governance Act 2020 (CIGA) came into force on 26 June introducing temporary measures intended to protect companies whose financial position was affected by the coronavirus from creditors’ winding up petitions. This quasi moratorium on enforcement was originally due to expire at the end of September but has now been extended to 31^st December

On CIGA’s coat tails, we have a new Insolvency Practice Direction (IPD) which introduces a procedure to ensure the new ‘coronavirus test’ is met before a petition can be advertised and proceed to a final hearing.

A creditor’s petition must now contain a ‘coronavirus test’ statement which explains in detail why the creditor considers that (a) the Covid-19 pandemic has not had a financial effect on the debtor company; or (b) the facts by reference to which the debtor company is said to be insolvent would have arisen even if coronavirus had not had a financial effect on the company.

Petitions will initially be listed for a non-attendance pre-trial review (PTR) on the first available date after 28 days from presentation. The petition is served on the company, but at this stage the petition remains private. The company has an opportunity to oppose the petition and must file evidence 14 days ahead of the PTR. At the PTR, if the court is satisfied the test is met and the company does not oppose the petition, the petition will be listed in the normal winding up list. If the petition is contested and/or it is unclear whether the test will be met, a preliminary hearing will be listed with appropriate directions.

In many instances, insolvency is not a result of the pandemic, and many historic debts would clearly not have been paid even if the financial effects of coronavirus had not been felt. In these cases creditors will not want to wait for this protection to expire at the end of December 2020 or run the risk the government elects to extend the protection yet again.

We have experience of presenting petitions since CIGA came into force and have succeeded in satisfying the court on the coronavirus test and thus allowing the petition to proceed.

For now, each debt will have to be looked at on its own merits and we are well placed to help guide you through this temporary change to petition regime Emma Lake in our insolvency team for more information or advice.