Coronavirus: Insolvency FAQs

Last Updated 11:50, 30 June 2021

Given the wide-ranging disruption being caused by the Coronavirus outbreak, the impact is being felt both in terms of the likelihood of businesses heading into insolvency, and the effects on the insolvency process itself.  These FAQs aim to answer some of the common questions being asked in this area.

[tela_accordion title="Q1. My company has received a winding-up petition. Are hearings still going ahead? What should I be doing?"]If you have received a winding-up petition, you should not ignore it and act promptly as the consequences can be very serious.Winding up petitions due for a hearing are still taking place, albeit remotely by telephone or Skype for Business. However, a temporary procedure is currently in place for winding-up petitions presented in the period up to 30 September 2021. The changes include:

1. A non-attendance 'pre-trial review' (“PTR”) to take place before the winding-up petition can be listed for a hearing in the winding-up list. At the PTR, the court assesses on the papers whether it is likely to make a winding-up order having regard to the coronavirus test. This is a test which was introduced by the Corporate Insolvency and Governance Act 2020 and looks at whether the coronavirus has had a financial effect on your company.
2. The court may list the petition for a 'preliminary hearing' if it is not able to make a decision based on the evidence presented at the PTR. At this hearing, the court can either dismiss the petition or list it for a hearing in the winding-up list.
3. Any petition filed is classified as “private” until the court has concluded whether or not it is likely that it will be able to make a winding-up order. This means the petition cannot be advertised in the Gazette until after the PTR / preliminary hearing has taken place.

Given the recent changes in legislation, we would therefore strongly recommend that you obtain legal advice on your position in relation to the winding-up petition received and explore the options available to you / your company.[ela_accordion][tela_accordion title="Q2. I am a creditor of  an individual / company. Can I take action to recover the monies I am owed despite the Coronavirus outbreak?"]Yes, although this would depend on the facts at hand. We would therefore strongly recommend that you seek legal advice as soon as possible on your position and the options currently available to you (if any) to recover the monies owed. This particularly so in view of the ongoing changes in legislation being introduced due to the ongoing coronavirus pandemic. For example, whilst there are currently no restrictions on presenting bankruptcy petitions against individuals, there are restrictions on the presentation of debt-related winding-up petitions. For further information on the Debt Collection and Winding up Petition Restrictions please see our article Coronavirus: Debt Collection, Demands and Winding Up Petitions.Prompt action can often increase the chances of recovery of the monies so it is important to establish whether you have a claim against the debtor as soon as possible. It might also be that a solution can be reached without the involvement of the Courts, or at least ensure that this only becomes necessary at a later date.[ela_accordion][tela_accordion title="Q3. I am a creditor of a company. Can I still serve a statutory demand on the debtor company?"]Yes, you can still serve a statutory demand on a debtor. However, you should note that the Corporate Insolvency and Governance Act 2020 imposes a blanket restriction on presenting winding-up petitions based on statutory demands served on or after 27 April 2020. This restriction has been extended for a fourth time to now expire on 30 September 2021.Given the above, if you wanted to rely on the debtor's failure to pay the statutory demand as a basis for presenting a winding-up petition, it would be advisable to serve the demand after 30 September 2021 (unless extended).You should in any event be seeking legal advice to ensure that you are following the correct procedure and explore any alternatives available to you / your company to recover the debts due.[ela_accordion][tela_accordion title="Q4. I am a director of a company and have read about the suspension of the 'wrongful trading' provisions. Are there any other ways in which I could still risk personal liability as a director?"]Yes, existing laws on fraudulent trading, misfeasance and reviewable transactions are still in force. Similarly the director disqualification rules still apply. You should note that the Corporate Insolvency and Governance Act 2020 does not amend the wrongful trading provisions of the Insolvency Act 1986, instead its provisions are temporary and merely sit in parallel to them. For further information in this regard we would suggest reading the article we have prepared which can be found here. We would also strongly recommend that you seek legal advice on your position as a director if you are concerned about your company's financial position.[ela_accordion][tela_accordion title="Q5. I am a director of a company and my company has entered into financial troubles since the Coronavirus outbreak. How do I know if my company is insolvent and is there any way I can avoid this?"]Directors who are concerned about their company's ability to meet its current and future financial commitments following the coronavirus outbreak should seek independent legal advice as soon as possible to avoid potential personal liability under the insolvency legislation. The potential risks for a director in such circumstances are complex and include the risk of being disqualified from holding the position of director or being involved in the promotion or management of a company for a period of up to 15 years.Two tests are used to establish insolvency: the cash-flow test looks at whether a company is unable to pay its debts as they fall due, whilst the balance-sheet test focuses on whether the company's liabilities outweigh its assets. Applying the tests is not always a straightforward process. However, once the criteria are met, the company risks being placed into administration or wound-up.Directors should also note that the Corporate Insolvency and Governance Act 2020 (“CIGA”) has introduced temporary measures to assist companies in financial distress as a result of the coronavirus pandemic. For example, CIGA provided for a suspension of the wrongful trading liability for directors referable to the period from 1 March 2020 to 30 September 2020. A second suspension of this liability was introduced for the period between 26 November 2020 and 30 April 2021. A third suspension of this liability was introduced for the period between 30 April 2021 and 30 June 2021. A fourth suspension of this liability was recently introduced for the period between 30 June 2021 and 30 September 2021. For these periods, the assumption is that any worsening in a company's financial position was due to the effects of the coronavirus pandemic and not the actions of its directors.[ela_accordion][tela_accordion title="Q6. What is the government doing to help struggling business during the Coronavirus outbreak?"]The Government has introduced a range of measures for business tenants affected by the coronavirus pandemic, such as protections from forfeiture for non-payment of rent and which have been recently extended to 25 March 2022. There are also currently restrictions on landlords recovering unpaid rent by the exercise of commercial rent arrears recovery. These are in force until 25 March 2022.The Corporate Insolvency and Governance Act 2020 has also provided for changes in three main areas to give companies breathing space and keep trading while they explore options for rescue:(i) corporate insolvency reform, comprising a new statutory moratorium process for debtor companies, a new restructuring plan procedure and provisions invalidating contractual provisions in contracts for the supply of goods and services, triggered by insolvency proceedings changes;(ii) corporate governance provisions, which include a number of measures to provide companies and other qualifying bodies with temporary easements on certain company filing obligations and requirements relating to AGMs and other meetings; and(iii) measures to protect directors and their companies from creditor action on debts due to the coronavirus pandemic, comprising provisions mitigating director liability for wrongful trading during the pandemic, and provisions restricting the presentation of debt-related winding-up petitions.For further information in this regard we would suggest reading the articles we have prepared on Director Duties and Coronavirus, and Managing contract performance in the new normal.[ela_accordion][tela_accordion title="Q7. How do I apply for the Coronavirus Job Retention Scheme? Is it open to all employers?"]The Coronavirus Job Retention Scheme has been extended to 30 September 2021. The Government has an online service, which can be accessed using your Government Gateway user ID and password you will have received when registering for PAYE online. For periods from 1 November 2020 to 30 April 2021, employers can claim for employees who were employed and on their PAYE payroll as at 30 October 2020. Employees do not need to have been furloughed under the Coronavirus Job Retention Scheme previously and employees can be on any type of employment contract.Employers are encouraged to use the Government portal to find out if they are eligible and see how much they can claim to cover wages for employees on furlough and submit their claimsIt is important that you read the relevant guidance on the maximum number of employees that can be claimed for by an employer. For further information on the Job Retention Scheme see Coronavirus: Job Retention Scheme.[ela_accordion][tela_accordion title="Q8. What will happen to the Job Support Scheme that was previously announced?"]In light of the Coronavirus Job Retention Scheme extension, the launch of the Job Support Scheme will be postponed until after the Coronavirus Job Retention Scheme has ended. The specific date has yet to be confirmed. Although at the current time, only the Coronavirus Job Retention Scheme is available to employers. Employers should regularly check the Government's published guidance for any updates.For further information on the Job Support Scheme, see the Government's Job Support Scheme Factsheet.[ela_accordion]

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If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.