This is a handy summary on the effect of Brexit and COVID-19 on UK Insolvency Proceedings. This will be a useful guide for (i) those studying Company & Insolvency Law, (ii) students going for an interview with chambers who practice in this area, or (iii) students’ general knowledge and practice.
BREXIT and Insolvency
A) The Brexit Withdrawal Agreement came into effect on 1 January 2021. Before this time, EU Insolvency regulations had direct effect in UK law and offered automatic recognition of insolvency procedures and judgments between the UK and EU Member States. After 1 January 2021 those common regulations no longer apply to the UK.
The Insolvency (Amendment) (EU Exit) Regulations 2019(‘the EU Exit Regulations‘) dealt with necessary amendments to EU insolvency legislation which formerly had direct effect in the UK. Under the new EU Exit Regulations,the UK courts have jurisdiction to open insolvency proceedings where:
i) The debtor’s centre of main interests (COMI) is in the UK
ii) The debtor’s COMI is in another EU member state and it has an establishment in the UK
B) Furthermore, Schedule 4 of the EU Exit Regulations made several changes to the wording of the Insolvency Rules 2016 in relation to winding up petitions:
i) Previously, the Insolvency Rules 2016 had a requirement to state whether insolvency proceedings were ‘main, secondary or territorial proceedings’ in winding up petitions.
ii) This has been replaced with a requirement to state whether insolvency proceedings are Centre of Main Interest (COMI) proceedings, establishment proceedings or proceedings to which the EU Regulation does not apply.
If this statement is not properly made in a petition, the winding up court will grant an adjournment for the necessary amendments to be made.
COVID-19 and The Corporate Insolvency & Governance Act 2020 (‘CIGA 2020’)
The COVID-19 pandemic had an adverse effect on businesses, companies and the economy. The UK government introduced several measures to protect businesses from the negative effects of the pandemic.
In relation to the winding up of companies, the Corporate Insolvency & Governance Act 2020 (‘CIGA 2020’) provided temporary protections for companies against the presentation of winding up petitions in 2 main phases:
PHASE A: March 2020 until 1st October 2021.
i) A temporary ban on the presentation of winding up petitions based on statutory demands.
ii) Petitions presented by a creditor within this period had to satisfy the ‘coronavirus test’, i.e. the creditor must prove to the court that the company was insolvent and:
- Coronavirus had not had a financial effect on the debtor company OR
- Even if coronavirus had a financial effect on the debtor company, there was another reason why the debtor was insolvent.
PHASE B: 1st October 2021 to 31st March 2022:
Creditors can present a winding up petition against a company that owes them money, BUT only if:
- The company owes the creditor £10,000 or more
- The creditor has given the company debtor 21 days to make payment proposals
[NB]: These temporary protections came to an end on 31st March 2022 and there has been a return to the pre-pandemic insolvency regime. During the period of the temporary protections, the number of company insolvencies were very low. It is expected that there will now be a sharp rise in insolvencies, due to the ending of the protections for companies.
Marian Riley-Poku
Senior Lecturer
City Law School
April 2022
This is a handy summary on the effect of Brexit and COVID-19 on UK Insolvency Proceedings. This will be a useful guide for (i) those studying Company & Insolvency Law, (ii) students going for an interview with chambers who practice in this area, or (iii) students’ general knowledge and practice.
BREXIT and Insolvency
A) The Brexit Withdrawal Agreement came into effect on 1 January 2021. Before this time, EU Insolvency regulations had direct effect in UK law and offered automatic recognition of insolvency procedures and judgments between the UK and EU Member States. After 1 January 2021 those common regulations no longer apply to the UK.
The Insolvency (Amendment) (EU Exit) Regulations 2019(‘the EU Exit Regulations‘) dealt with necessary amendments to EU insolvency legislation which formerly had direct effect in the UK. Under the new EU Exit Regulations,the UK courts have jurisdiction to open insolvency proceedings where:
i) The debtor’s centre of main interests (COMI) is in the UK
ii) The debtor’s COMI is in another EU member state and it has an establishment in the UK
B) Furthermore, Schedule 4 of the EU Exit Regulations made several changes to the wording of the Insolvency Rules 2016 in relation to winding up petitions:
i) Previously, the Insolvency Rules 2016 had a requirement to state whether insolvency proceedings were ‘main, secondary or territorial proceedings’ in winding up petitions.
ii) This has been replaced with a requirement to state whether insolvency proceedings are Centre of Main Interest (COMI) proceedings, establishment proceedings or proceedings to which the EU Regulation does not apply.
If this statement is not properly made in a petition, the winding up court will grant an adjournment for the necessary amendments to be made.
COVID-19 and The Corporate Insolvency & Governance Act 2020 (‘CIGA 2020’)
The COVID-19 pandemic had an adverse effect on businesses, companies and the economy. The UK government introduced several measures to protect businesses from the negative effects of the pandemic.
In relation to the winding up of companies, the Corporate Insolvency & Governance Act 2020 (‘CIGA 2020’) provided temporary protections for companies against the presentation of winding up petitions in 2 main phases:
PHASE A: March 2020 until 1st October 2021.
i) A temporary ban on the presentation of winding up petitions based on statutory demands.
ii) Petitions presented by a creditor within this period had to satisfy the ‘coronavirus test’, i.e. the creditor must prove to the court that the company was insolvent and:
- Coronavirus had not had a financial effect on the debtor company OR
- Even if coronavirus had a financial effect on the debtor company, there was another reason why the debtor was insolvent.
PHASE B: 1st October 2021 to 31st March 2022:
Creditors can present a winding up petition against a company that owes them money, BUT only if:
- The company owes the creditor £10,000 or more
- The creditor has given the company debtor 21 days to make payment proposals
[NB]: These temporary protections came to an end on 31st March 2022 and there has been a return to the pre-pandemic insolvency regime. During the period of the temporary protections, the number of company insolvencies were very low. It is expected that there will now be a sharp rise in insolvencies, due to the ending of the protections for companies.
Marian Riley-Poku
Senior Lecturer
City Law School
April 2022
Company Insolvency Pro Bono Scheme 