Temporary Insolvency Restrictions to End in October
The Insolvency Service announced that the temporary provisions introduced to protect UK businesses from insolvency will be phased out from 1 October 2021.
These measures, which include restrictions on creditors commencing insolvency proceedings, were introduced in June 2020 as part of the UK Government’s economic response to COVID 19.
What happened in June 2020?
On 25 June 2020, the Corporate Insolvency and Governance Act 2020 (CIGA) came into force.
The UK Parliament passed CIGA to protect otherwise viable businesses from becoming insolvent as a result of the financial turmoil caused by COVID 19.
Various measures were put into place to assist companies including preventing creditors from presenting winding-up petitions to court unless they could show that the pandemic had not had a financial impact on the debtor company. There was also a ban on statutory demands.
The provisions introduced in June 2020 were originally meant to last for six months but were extended until 31 March 2021, and then again until 30 September 2021.
What is changing?
As made clear from the Government’s recent announcement, companies will no longer be able to rely on the general protection offered in CIGA.
The restrictions on presenting winding-up petitions and statutory demands will end.
However, the announcement from The Insolvency Service also made clear that new protective legislation will be introduced to help smaller companies recover.
It has always been clear that the extensive measures put in place to protect debtors at the height of the pandemic would have to end at some point.
Businesses now need to be mindful of the impact of the end of these measures.
Creditors may welcome the return to a more flexible debt recovery regime, whilst those companies with significant debts will no longer be able to rely on the COVID-19 protections.
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