Government Extends Covid-19 Insolvency Protections

Government Extends Covid-19 Insolvency Protections

Key Contact: Huw Roffe

Author: Steven Koukos

The Corporate Insolvency and Governance Act 2020 originally introduced a number of protective measures to help companies and directors who were facing difficulties during the Covid-19 pandemic. The measures included protecting businesses from aggressive creditor enforcement and removing personal liability on company directors.

These measures were due to come to an end in September 2020 but have been subject to extensions.  The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021 have further extended some of the key measures, including:  

  • suspension of serving statutory demands and restrictions on winding-up petitions to protect companies from creditor enforcement action due to debts related to Covid-19, extended to 30 June 2021
  • temporary removal of the threat of personal liability for wrongful trading of directors extended to 30 June 2021
  • prohibition of termination clauses until 30 June 2021, which means suppliers cannot stop their supply or demand additional payments when a company is going through a rescue process (this does not apply to small suppliers who remain exempt from the obligation to supply)
  • entry into a moratorium will remain relaxed and a company will be able to enter a moratorium if they have been subject to an insolvency procedure in the previous 12 months. These measures will be extended until 30 September 2021

Minister for Corporate Responsibility, Lord Callanan, said:

We’re extending these important measures to give businesses the extra breathing space they need as we cautiously reopen the economy and look to build back better from the pandemic.

With the threat of aggressive creditor action and insolvency eased, companies will be able to focus all their efforts on their recovery.”

Dr Roger Barker, Director of Policy & Corporate Governance at the Institute of Directors, said:

During the pandemic, it has been essential to provide company directors with the means by which they can sustain inherently viable businesses. An important component has been the temporary suspension of the potential liability faced by directors if they continue to operate a company that is facing financial difficulties. During the exceptional circumstances of the pandemic, this has been an appropriate step for government to take in order to ensure that viable businesses survive and are in a position to contribute to a meaningful economic recovery.”

For further guidance on the above topic, please get in touch with our litigation team.

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