Collecting debts in a pandemic

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The courts clarify the provisions of the new CIGA legislation before it came into force

The Corporate Insolvency & Governance Act 2020 (the “Act”) came into force on 26 June 2020.  It was preceded by Government announcements at the end of March and April and a Bill published in May. The provisions included the effective temporary suspension of service of statutory demands from 30 March 2020, now, until at least 30 September 2020 and the prohibition, on winding up petitions presented after 27 April 2020, of winding up orders made against companies where the court is satisfied that COVID-19 has had a financial effect on the company.

In June, before the Act came into force and was just a mere Bill, the courts were asked, on two separate occasions, to consider applications to injunct the presentation and advertisement of winding up petitions on the basis of the above provisions.

On both occasions, the court was prepared to accede to the companies’ wishes and proceed as if the Bill was in force in respect of its terms in existence at the time. The court clarified that is was for the company to show that COVID-19 had had a financial effect on the company and, in both cases, the court was satisfied that the companies had satisfied that burden.

These decisions reinforce how difficult it is going to be to collect debts by the service of statutory demands and/or presentation of winding up petitions, certainly up to the end of September and probably into the Autumn as the Government has the ability to extend these temporary provisions.

Re a Company [2020] EWHC 1406 (Ch) and Re a Company [2020] EWHC 1551 (Ch)

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