How has the law changed?
In part in response to the Covid-19 pandemic, legislation was passed by the government earlier this year which sought to assist companies to trade through the current economic climate. Included within the measures is a degree of protection from compulsory winding up.
The Corporate Insolvency and Governance Act 2020 (The Act), was laid before parliament on 20 May, and became law on 26 June. It is important creditors are aware of what changes have been implemented and the potential and impact which it may have upon debt recovery action you may be considering or have already commenced.
The main part of the Act affecting creditors is the temporary restriction on presentation of winding up petitions and the factors that the Court has to take into account when deciding whether to wind up a company.
On Thursday 24 September 2020 the government passed a further statutory instrument which extended the operation of these restrictions. As a result, the measures which were due to expire on Wednesday 30 September 2020 have now been extended until 31 December 2020.
A key point to note is that the Act has retrospective effect so any pending petitions presented after 27 April will be affected, along with any winding up orders made after that date.
The Act has introduced the following restrictions:
- A petition cannot be presented by a creditor during the period of 27 April 2020 and 31 December 2020 unless the creditor has reasonable grounds to believe that (a) coronavirus has not had a financial effect on the debtor, or (b) the debtor would have been unable to pay its debts even if coronavirus had not had a financial effect on the debtor;
- A petition cannot be presented after 27 April 2020 if it is based on a unsatisfied statutory demand served between 1 March 2020 until 31 December 2020;
- When deciding whether to make a winding up order the Court will need to be satisfied that the grounds giving rise to the petition would have arisen even if Covid-19 did not have a financial effect on the debtor;
- All winding up orders made between the 27 April and 31 December will automatically be void (that is, of no legal effect) unless the Court would have made the winding up order if the new law was in force at the time the order was made.
Related FAQs
If changed circumstances mean that a business wants to exit from a contractual arrangement, then before trying to terminate it, a careful review should be carried out to see whether a right to terminate actually exists. For example:
- Not every contract for the sale of goods contains the right for the buyer to terminate in circumstances where the supplier hasn’t done anything wrong. If a business has entered into a contract on the supplier’s standard terms, it is unlikely to contain any such provision
- A contract for the provision of services is unlikely, if drafted by the customer, to contain a provision that allows the supplier to walk away from the arrangement at short notice, or perhaps at all
If a party tries to terminate a contract when it doesn’t have the right to do so, the other party will likely claim breach of contract and could sue for damages. In the case of a long term or high-value contract, this could amount to a very significant liability.
Even if the right to terminate the contract does exist, there might be particular rules about the following:
- How much notice has to be given
- How such notice has to be served (for example, it might have to be in writing to a particular address)
- When the notice can be served (perhaps on an anniversary of the start of the contract)
- How much a party has to pay if it cancels (for example, for raw materials, for work done to date, or even the whole contract price)
All of these factors must be taken into account, and any contractual processes for termination are followed.
The formal Government position relating to construction sites is that construction work should continue on site if it can be conducted safely, and the Business Secretary, Alok Sharma, has written an open letter to the UK Construction Industry thanking it for all its help in the current crisis. The letter also confirms the Government’s current official policy of keeping construction sites open. The full text of the letter can be downloaded.
This also remains the formal position of the Construction Leadership Council (CLC) with the qualification that sites should operate in accordance with Public Health England instructions; without compromising health and safety; and in accordance with the Site Operating Procedures issued last week by the CLC.
In practice, many construction sites have been closed by national developers and house builders due to difficulties with staffing and supply chain, and practical issues with compliance with the social distancing and site operating procedures.
The Scottish Government has recently issued guidance that all non-essential construction sites, which includes housing, office, leisure, schools and retail sites, must close to reduce the risk of the spread of Covid-19.
On 18 April 2020, it was announced that an exception to the current stay in possession proceedings and ban on all evictions has been made to allow possession orders to be made against trespassers.
This means land owners can take action to remove unauthorised persons occupying their land. Trespassers include: squatters; travellers; failed successors of secure tenancies; and licensees whose licences have been terminated.
Further, the automatic stay to possession proceedings currently imposed no longer applies to applications for interim possession orders meaning any persons found to be “squatting” on land without permission may again be subject to an order requiring them to leave your premises within 24 hours of service of that order.
Cancellation insurance usually covers certain expenses and loss of profit, as long as the reason for cancellation is not excluded. These exclusion clauses are often quite wide and exclude avian, swine flu, quarantine, and restrictions of movement as a result of communicable disease. This means that you may not be entitled to compensation under this cover.
Employers had the ability to furlough extremely vulnerable employees who needed to shield.
If your employee is on sick leave or self-isolating as a result of Coronavirus, including as a result of track and trace, they’ll be able to get Statutory Sick Pay, subject to other eligibility conditions applying.
There is no special exemption for them, so they would need to meet the usual requirements to be placed on Flexible Furlough after 1 July 2020. i.e. They had to have been placed on furlough for at least 3 weeks before 1 July. Otherwise, they could not be furloughed.