Temporary measures under the Corporate Insolvency and Governance Act 2020 (CIGA) & the suspension of liability for wrongful trading revisited

In light of the ongoing COVID-19 situation, and the strain that it is putting on businesses, the Government has announced the further extensions of the temporary measures designed to give businesses some breathing space.

Extension of temporary measures

The following temporary measures have all been extended such that they now expire at midnight on 30 March 2021:

  • the temporary suspension of the use of statutory demands and winding-up petitions (Schedule 10 CIGA)
  • the ability for companies and other qualifying bodies to hold AGMS virtually, thereby enabling shareholders to examine papers and vote remotely (Schedule 14 CIGA)
  • the exclusion allowing small suppliers to terminate a contract for the supply of goods and services (section 15 CIGA)
  • the remaining relaxations for obtaining a Moratorium under Part 1A and Schedule ZA1 IA1986 (Schedule 4 CIGA)

Whilst the provisions that prevent creditors relying on the failure to comply with a statutory demand as the basis for presenting a petition and the restrictions on presenting a bankruptcy petition in circumstances where COVID-19 has had a financial impact on the debtor company protect companies from aggressive creditor enforcement action, they also impact on a creditor’s options for recovering a debt.

Suspension of liability for wrongful trading revisited

The Government has reinstated the suspension of liability for wrongful trading until 30 April 2021.  The suspension, which originally lapsed on 30 September  2020, was reintroduced with effect from 26 November 2020.  Whilst section 12 of CIGA  is called “Suspension of Liability for Wrongful Trading”, it actually a slight misnomer.  It does, however, give directors some comfort as to the potential exposure for wrongful trading under section 214 IA 1986 on the basis that when considering a director’s liability for wrongful trading, the court should assume that the director was not responsible for any worsening of the financial position of the company or its creditors during the relevant period.  We now have two relevant periods: 1 March 2020 to 30 September 2020 (inclusive) and 26 November 2020 to 30 April 2021 (inclusive).

Notwithstanding this provision, directors should continue to be mindful of their duties to the company.

Note: the Government can further extend the temporary measures, but up to 6 months at a time, if it considers it reasonable to mitigate the effects of COVID-19.

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