18th June 2020
The Corporate Insolvency and Governance Bill places restrictions on winding up petitions. In summary, a winding-up order is only applicable if the court can be convinced that a company would be unable to pay its debts, if Covid-19 had not had a financial impact on the company. In the current climate, it is submitted that this may be difficult to establish, thus denying creditors a favoured method of debt enforcement.
The Bill was published on the 20th May 2020 and if it is enacted it will have retrospective effect from the 26th March 2020.
This policy does reflect the UK Government’s recent document; Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency (published on the 7th May), where there is an emphasis on protecting business continuity and employment as a result of Covid-19. So, a creditor should not go for the “nuclear option” of a winding-up order, but rather sit down with the debtor and negotiate a solution under the contract.
The denial of this option by creditors could result in an increase in the use of alternative dispute resolution (ADR) such as adjudication, as cashflow pressures will in the first instance favour a remedy that is time efficient and suited to relatively simple issues, such as non-payment. Also, suppliers will be very careful to avoid exposure to the risk of non-payment and may require some form of upfront payment, or other security from contractors.