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Coronavirus - The end of temporary insolvency changes - UK

  • United Kingdom
  • Banking and finance - Articles
  • Coronavirus - Business resilience


The Corporate Insolvency and Governance Act 2020 (“CIGA”) made a number of temporary changes to insolvency law designed to mitigate the worst effects of the COVID19 pandemic. In conjunction with these changes, the Coronavirus Act 2020 contained provisions to protect commercial tenants from forfeiture.

The temporary changes introduced by the government are

  • prohibition on winding up petitions and serving statutory demands
  • suspension of liability for wrongful trading
  • prohibition on forfeiture by landlords of commercial premises for non-payment of rent

These temporary changes have been largely successful in protecting businesses from the economic impact of the pandemic. The changes were initially due to expire on 30 June 2020, but were extended and now expire on 30 September 2020. There is no suggestion that these provisions will be extended further.

As well as these provisions ending on 30 September, the government’s Coronavirus Job Retention Scheme is now winding down and will end on 31 October 2020, despite 1 in 10 of the UK workforce still being partly paid under the scheme. To add to the woes of UK businesses, payments to HMRC which have been deferred are due for payment in January 2021.

What this means is that from the end of September onwards the financial pressure on business affected by the pandemic will markedly increase. There will be companies whose future viability is uncertain; where it is likely that they will not be able to resolve arrears with landlords, where little or no rent may have been paid in the last two quarters, or other creditors (who have not been able to serve statutory demands or issue winding up petitions), or bear the additional costs of returning employees.

For the directors of these companies it is important that they fully understand the financial position of their company, not just now but going forward through the remainder of 2020 and into 2021. If the solvency of the company is in doubt, or dependent on third party support, the directors need to understand their duties to creditors and other third parties in order to be able to make informed decisions on continuing to trade. With wrongful trading again attracting personal liability the risks to directors are very real.

CIGA introduced new insolvency processes, the standalone moratorium and Part 26A Schemes, which are designed to help companies survive, and the existing insolvency procedures of administration and CVA can help to protect businesses and jobs. The options available to directors of distressed companies are wide, but early professional advice as to the most suitable is essential.