The Corporate Insolvency & Governance Act 2020 (CIGA) came into force on 26 June 2020, bringing in a mix of both temporary Covid-related measures and permanent changes to the restructuring and insolvency landscape. Our analysis of the Act as a whole (at Bill stage) can be found here.
CIGA’s temporary measures aim to help relieve the burden on businesses dealing with the Covid-19 outbreak and to allow them to continue to trade where possible. They include a tight restriction on the presentation of winding up petitions and the making of winding up orders in respect of corporates in any sector until 30 September 2020 at the earliest.
The new Insolvency Practice Direction relating to CIGA (the new PD) was approved by the Chancellor of the High Court on 3 July 2020 and sets out the procedural framework for winding up petitions presented during the restricted period under CIGA. The key features are as follows:
Petitions must contain ‘coronavirus test’ statement
The court will reject petitions which do not contain the required "coronavirus test" statement, in which the petitioner confirms that it considers either:
- the Covid-19 pandemic has not had a financial effect on the debtor company; or
- the facts by reference to which the debtor company is said to be insolvent would have arisen even if coronavirus had not had a financial effect on the company.
Petition kept private
In a significant variation to the usual practice (where details of the petition are publicly searchable at the Central Index and/or individual courts or registries), petitions presented during this period will initially be marked private and cannot be revealed or made available for inspection until the court makes an order accordingly.
Non-attendance pre-trial review (PTR)
Petitions will first be listed for a 15 minute non-attendance PTR for the first available date 28 days after presentation of the petition, at which the court will consider on the papers whether it is likely an order would be made (taking into account the "coronavirus test").
If satisfied the test is met and the company does not oppose the petition, the court will list the petition in the winding up list at that stage. If the petition is contested and/or it is unclear whether the test will be met, a preliminary hearing will be listed with appropriate directions. Parties are obliged to file and serve a listing certificate in advance of the PTR to assist the court.
Evidence on which the petitioner wishes to rely at the preliminary hearing should be filed with the petition. The company must serve any evidence on it wishes to rely within 14 days of service of the petition.
If the court is not satisfied that it will be likely to make a winding up order (having regard to the "coronavirus test"), the winding up petition will be dismissed at this stage. If the court is satisfied at this stage, the petition will be listed in the main winding-up list, and further steps can be taken to advertise the petition and comply with the usual procedural requirements.
As the end of September nears the government will, in considering whether the restrictions on winding up should be extended, be weighing up the competing interests of creditors – who are understandably impatient and facing their own pressures – with the protections business may continue to need at that stage of the crisis. In the meantime, would-be petitioners are faced with navigating the new obstacles that arise from CIGA and the new PD. Recent cases considered by the court (in particular Re a Company  EWHC 1551 (Ch)) indicate that the court will interpret the CIGA restrictions generously in favour of debt companies, so petitioners have been set a high bar in showing that, ignoring coronavirus, the company would still be insolvent and that it would be fair for the company to be wound up in the circumstances.
Other provisions of the new PD – timing of moratorium
The new PD also helpfully clarifies that, similar to out-of-court filings in administration (see our note on the Temporary Insolvency Practice Direction 2020), filing of documents by directors for the purposes of obtaining a (newly introduced) moratorium under section A3 of the Insolvency Act 1986 will be deemed filed at the date and time recorded in the court’s automatic acknowledgment email produced at submission.
For further information on this article, please contact a member of our Restructuring & Insolvency Team.