The Corporate Insolvency and Governance Act 2020 (‘CIGA’) came into force in June 2020 and introduced significant reforms to the insolvency law of England and Wales. This article explores the temporary measures introduced by CIGA, with a particular focus on what they mean for creditors looking to recover bad debts and offers a possible solution for creditors with claims which, in current challenging times, may be written off as disproportionately costly to take forward.
Limited debt recovery options and enforcement rights until (at least) 31 December 2020
Of real significance to creditors were a number of debtor-friendly measures introduced by CIGA to provide companies with breathing space during the COVID-19 pandemic. The measures significantly restrict - albeit temporarily - debt recovery options and creditor enforcement rights by making it very difficult for a creditor to present a winding up petition.
As things stand, a creditor cannot present a winding up petition based on:
The measures will last until 31 December 2020 with the possibility of further extension if the Secretary of State deems it necessary. They have already been extended once beyond 30 September 2020.
What does this mean in practice for creditors chasing debt?
The temporary reforms mean that there is, in effect, a blanket moratorium on winding up petitions save in the limited circumstances where there are clear reasons to show that the company's insolvency is not related to COVID-19.
In practice, the most significant consequences for creditors are:
Can our debt recovery portfolio model offer a solution?
These limits on the use of traditional insolvency procedures to recover overdue debt come at the same time that the recession makes good cash-flow management crucial for corporate well-being. A solution to this conundrum is our funded claims portfolio model, in which we work with a third party funder to pursue all of a client's overdue debt claims on a “no-recovery-no-fee” basis. This model enables clients to pursue smaller claims which would otherwise be written off because it would be disproportionately costly to do so on an individual basis - instead, smaller claims are aggregated with larger claims and we use efficiencies of scale, standardised documents and our market-leading contentious expertise to pursue all the claims efficiently. The client only pays our fees if we make a recovery, and in most cases a portion of those fees are recoverable from the debtor in addition to the debt.
In the tough economic times companies are facing, where debtors enjoy the protection offered by CIGA while creditors seek the cash which is their corporate life-blood, our funded claims portfolio offers a low-risk, practical solution. If you would like to find out more about how Clyde & Co can assist with cash flow management debt recovery, please get in touch with us to discuss your options.