DPP Business Tax

Statutory Demands and The COVID-19 Pandemic

The UK Government, in its bid to soften the unprecedented and devastating impact on the UK economy of the Covid-19 pandemic, has amongst other measures temporarily placed restrictions upon the use of Statutory Demands and winding up petitions. The provisions for this have been set out in the Corporate Insolvency and Governance Act 2020 (the “Act”) which came into force on 26 June 2020.The Government had previously on 23 April 2020 announced restrictions on the use of Statutory Demands and winding up petitions during the COVID-19 pandemic. The Bill was pushed through an accelerated Parliamentary process.

The Act applies to any debt owed by a company and does not just apply to rent or other commercial lease liabilities. The provisions do not apply to financial services companies, insurance companies and banks.

The relevant dates are that any Statutory Demands served between 1 March 2020 and 30 September 2020 cannot be used as the basis for representing a winding up petition after 27 April 2020.

It is important to note that the Act does not provide a blanket ban on the presentation of winding up petitions. The criteria to be considered is either the COVID-19 pandemic has not had any financial impact on the debtor company or that the company would not have been able to pay its debts irrespective of the pandemic. The petitioning creditor will need to include a statement setting this out in the winding up petition.

If the Court finds that the pandemic has had a financial impact on the debtor company then the winding up petition will be dismissed. If the Court is satisfied that the debtor company would have been unable to pay its debts regardless of the pandemic then the petition will proceed. The Court will consider carefully if the COVID-19 pandemic had a financial impact on the company and if its financial position has become worse as a result of the pandemic. It would appear that petitioning creditors will have difficulties in proving that no financial difficulties have been caused to most debtor companies as the economic crisis in the UK deepens and worsens for many sectors. It will not be sufficient to argue that the debt was incurred before the pandemic. It may influence the Court if the petitioning creditor can provide evidence that the debt is significantly old and has never been disputed.

The cost will be awarded against the petitioning creditor in the event that the Court orders the dismissal of the winding up petition. Accordingly, creditors must take extra care when considering the Statutory Demand and winding up route. It is highly recommended that specialist insolvency legal advice be taken before deciding to serve a Statutory Demand.

The Act can also apply to winding up orders that have been made before 25 June 2020, the Court has the power to make the order void if it believes that it does not meet the requirements set out in the Act.

The normal route to challenge a Statutory Demand served upon a company or the presentation of a winding up petition is to seek an injunction from the Court to restrain the presentation of the winding up petition or to restrain the presentation of the advertisement of the petition. There have been a number of relevant reported cases this year.

In Re A Company [2020] EWHC 1406 (Ch) the injunction was granted by Mr Justice Morgan to restrain the presentation of the winding up petition. The Court decided that the COVID-19 pandemic had had an impact on the financial standing of the company.

It should be remembered that the Act is only temporary and many companies will find themselves in difficulties once the provisions set out in the Act come to an end, unless they are further extended. Companies that find themselves in financial difficulties should sensibly use this time and other financial support being provided by the Government in restructuring and taking proper legal advice and thereby avoiding insolvency.

For advice and assistance please contact:

Shahid Miah

Tajinder Barring

14 July 2020

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