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Covid-19 coronavirus update: suspension of statutory demands and winding up petitions

The government announcement of 23 April 2020, that it intends to introduce measures to protect the UK high street and other companies against aggressive debt recovery actions, will bring welcome relief to many UK businesses.

Following the complete shutdown of all but essential shops on 23 March 2020, many retailers have found themselves unable to generate sufficient revenue to pay their rent. Although The Coronavirus Act 2020  gave commercial tenants protection from forfeiture of any lease for a three-month period (until 30 June 2020), landlords could still issue winding-up petitions against the tenant, and some have been doing so.  This latest announcement signals the government's intention to put an end to this. Although framed predominately as a measure to protect the high street, the government has since confirmed that the measures will go wider and will temporarily ban the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions (presented between 27 April 2020 and 30 June 2020) where the causes of failure are Covid-19 related.

The provisions will come into force with the other insolvency related changes in the Corporate Insolvency and Governance Bill in the next few weeks.

What are the details?

The announcement makes it clear that:

  • the use of statutory demands will be banned between 1 March 2020 and 30 June 2020 if the cause of the non-payment is related to Covid-19;
  • where a winding-up petition is presented between 27 April 2020 and 30 June 2020 which claims that a company is unable to pay its debts, this will be examined by the courts to determine the cause of the non-payment and, where the inability to pay is the result of Covid-19, no winding-up order will be made;
  • changes will be made to the use of Commercial Rent Arrears Recovery such that Landlords cannot use the procedure unless they are owed at least 90 days of unpaid rent;
  • the government expects landlords and tenants to work collaboratively, with landlords giving tenants the breathing space that they need, while making it clear that tenants should continue to pay rent where they can afford to;
  • the government recognises that commercial landlords are also under financial tension and that, where necessary, they should look to take advantage of other government support measures such as the Coronavirus Business Interrupton Loans Scheme;
  • the measures will be introduced at the same time as measures previously announced by the government in relation to the suspension of wrongful trading and reform of the corporate insolvency framework (for more information click here). This legislative process is likely to take several weeks; and
  • although these measures are not yet in effect, once introduced, they will be in effect until at least 30 June 2020 and with the possibility of extension beyond this date.

Although the announcement is focused on commercial tenants, particularly those operating on the high street, it will not be restricted to these entities and the measures will apply more generally to any statutory demands and winding-up petitions issued against any company. There is very little detail in the announcement, however, and so we do not know:

  • how a court is expected to determine whether the cause of non-payment is Covid-19;
  • how long it will take the court to consider the winding-up petition given the pressures on the courts in the Covid-19 environment;
  • what it means to say that the winding-up petition must be first reviewed by the court (which could for example mean that an officer of the court must review the winding-up petition before it will be included on the court file or that the court will consider it post presentation); or
  • whether section 127 of the Insolvency Act 1986 (which invalidates certain transactions entered into after a winding-up petition is presented if an order is subsequently made) will apply pending the court's consideration of the winding-up petition.

We await the draft legislation for confirmation on these areas.

The press statement can be found here.

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