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CIGA bitesize: Changes to antecedent transactions for companies wound up on Covid petitions

As widely reported earlier in the year, the Corporate Insolvency & Governance Act 2020 (CIGA) included provisions tightly restricting (although not prohibiting) their use during the initial phase of the Covid pandemic. We covered the subsequently introduced Practice Direction on presenting petitions during the Covid period here.

Less prominent- but equally important to directors, liquidators and other stakeholders when considering what transactions may be capable of being reversed - have been the accompanying changes in CIGA to the ‘look-back’ periods for various antecedent transactions under the Insolvency Act 1986 (IA 1986), for companies wound up on Covid petitions.

1. Liquidation commencement date

Where winding up orders are made on petitions presented in the relevant period (1 March 2020 and 30 September 2020), CIGA deems the date of commencement of the winding up to be the date of the order, rather than the date of presentation of the petition (para 9, Sch 10 CIGA).

This amendment to the date of commencement of compulsory liquidations in the relevant period means that transactions between presentation of the petition and the making of the winding up order cannot be void dispositions within the meaning of s.127 IA 1986, depriving liquidators of a useful tool to recover funds for the estate. Instead, liquidators will need to consider challenging transactions in that period as antecedent transactions.

2. Antecedent transactions

The ‘relevant time’ periods in s.240 and s.245 IA 1986 are amended, affecting:

  • transactions at undervalue
  • preferences
  • avoidance of floating charges.

Transactions at undervalue & preferences – s240 IA 1986 amended

For affected liquidations, the two year look-back period will begin with the later of:

(i) the day 2 years before the day on which the petition was presented, and
(ii) the day 2 years and 6 months before the day on which the winding-up order was made 

and will end with the day on which the winding-up order was made (para 15(1)(2), Sch 10 CIGA).

The 6 month period will, for affected winding ups, begin with the later of:

(i) the day 6 months before the day on which the petition was presented, and
(ii) the day 12 months before the day on which the winding-up order was made 

and will end with the day on which the winding-up order was made (para 15(1)(3), Sch 10 CIGA).

Avoidance of certain floating charges – s245 IA 1986 amended

The two year period will, for affected liquidations, begin with the later of:

(i) the day 2 years before the day on which the petition was presented, and
(ii) the day 2 years and 6 months before the day on which the winding-up order was made 

and will end with the day on which the winding-up order was made (para 18(1)(2), Sch 10 CIGA).

The 12 month period will, for affected liquidations, begin with the later of:

(i) the day 12 months before the day on which the petition was presented, and
(ii) the day 18 months before the day on which the winding-up order was made and will end with the day on which the winding-up order was made (para 18(1)(3), Sch 10 CIGA).

Other dispositions/claims

The IA 1986 provisions governing the following (among others) are not amended by CIGA:

  • extortionate credit transactions (s.244 IA 1986)
  • transactions defrauding creditors (s.423 IA 1986)

We discuss CIGA’s amendments to wrongful trading claims under s.214 IA 1986 in our earlier article.

It is worth emphasising that the changes to the look-back periods will only affect companies in compulsory liquidation where the petition was presented in the 6 month window between 1 March and 30 September 2020. Those potentially affected by the more generous look-back provisions will want to scrutinise the timing to identify whether any transactions of concern may be caught.

For further information on this article, please contact a member of our Restructuring & Insolvency Team or visit the CIGA page.

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