The COVID-19 crisis has led to financial concerns for many businesses so it wasn’t a surprise when the Insolvency and Corporate Governance Bill was read in Parliament on 20 May 2020. Known as the ICG Bill, it placed a moratorium on winding-up petitions to prevent a large number of businesses becoming insolvent.
While many businesses are receiving protection from the ICG Bill that they wouldn’t otherwise have, it doesn’t mean there’s a complete block on being able to take debt recovery action.
What Does the ICG Bill Say?
To provide businesses with some additional time to cope with the financial impact of COVID-19, the government introduced the ICG Bill. This prevents creditors from being able to issue a winding-up petition. This restriction is only temporary and applies up to 30th June 2020.
There are some exceptions permitted under the Bill. If either of the following conditions apply, the creditor may proceed with a winding-up petition:
- The debtor company was not negatively influenced by COVID-19
- The creditor believes that even if the debtor was not influenced by COVID-19, a winding-up petition would have been issued anyway
Of course, almost every company struggling with debts will argue that their business has been adversely impacted by the pandemic. The problem arises with the burden of proof. The creditor must be able to evidence that one of the above two conditions apply, a difficult process that may also be costly.
The difficulties with being able to successfully prove that a debtor company is not covered by the ICG Bill means that it is effectively a moratorium on insolvency proceedings.
Other Debt Recovery Action
Although winding-up petitions are being effectively barred, creditors are still free to pursue other courses of debt recovery action during the period.
Corporate debtors can still face a variety of actions such as statutory demands and Letters of Demand for Payment. These steps are comparatively inexpensive and ensures that the corporate debtor is left in no doubt that the outstanding balance is being pursued.
More formal action is also permissible, such as a County Court Claim. It’s just the full winding-up petition which is precluded under the terms of the new Bill. In many cases, these alternative measures can be just effective as a winding-up petition in achieving payment of the debt, and may even have a speedier resolution.
Takeaway Points
As described above, in the period up to 30th June, no winding-up petitions can be issued against corporate debtors. However, we are of the opinion that you should continue to manage outstanding invoices proactively. There are many other types of permitted debt recovery action and this will ensure that payment is kept at the forefront of your debtor’s mind.
