What to expect in the field of Insolvency in 2022

Insolvency

Introduction

In the wake of the Coronavirus pandemic we have seen a number of legislative changes in the field of insolvency and 2022 will be no different. Significantly, the restrictions on winding-up petitions are scheduled to end in March, with the protected commercial rent-related restrictions (including the optional statutory arbitration process) set to be introduced at about the same time.

Directors of dissolved companies may also find themselves facing disqualification with the introduction of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, and insolvency practitioners can look forward to a tumultuous year in regards to their regulation and the compensation regime.

Restrictions on Winding-up Petitions

The restrictions on winding-up petitions found in the modified version of Schedule 10 to Corporate Insolvency and Governance Act 2020 (CIGA) are set to end on 31 March 2022.

These restrictions can be extended, but it is uncertain at this point if they will be. If it were to extend the restrictions, the government would be required to remake the current version of Schedule by regulations. However, according to sections 20-24 CIGA 2020, Schedule 10 can only be remade for a further six months but only if it is considered urgent to help alleviate the pressure of Coronavirus in relation to corporate insolvency or restructuring processes.

It is uncertain if an extension will occur. However, the drafting of the legislation seems to point towards the negative.

Protected Rent-Related Restrictions on Winding-up and Bankruptcy Petitions

The Commercial Rent (Coronavirus) Bill 2021-22 (the Bill) is due to be enacted and in force in the first quarter of 2022. Significantly, this bill introduced an optional statutory arbitration process for commercial rent arrears that accrued between 21 March 2020 and 18 July 2021 for England and 7 August 2021 for Wales (currently referred to as “protected rent debt”).

There are restrictions on winding-up and bankruptcy petitions when tenants owe such protected rent debt. For instance, a landlord cannot attempt a winding-up petition between the date the Bill comes into effect and 6- months’ later if the debt is not referred to arbitration. Whereas, if the debt is referred to arbitration, the landlord may not petition until after any arbitration has concluded.

If the Bill comes into force, it will extend the previous winding-up restrictions set out in Schedule 10 to CIGA 2020. Nonetheless, the current CIGA restrictions are wider (for instance, they are not limited to tenants subject to a forced closure of premises).

Regarding serving bankruptcy petitions on individual tenants that owe protected rent debt, certain retrospective restrictions apply preventing service where the statutory demand relied on was served (or, if an unsatisfied judgment is relied on, the claim was issued) on or after 10 November 2021.

Any bankruptcy order made on or after 10 November 2021, but before the Bill comes into force will be void in respect of protected rent debt.

This Government is aiming to pass the Bill by 25 March 2022, meaning that these protected rent-related insolvency restrictions would expire by 25 September 2022.

Director Disqualification and Dissolved Companies

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 (the Act) received Royal Assent on 15 December 2021. Provisions relating to directors of dissolved companies will come into force on 15 February 2022. According to section 2(14), these provisions expressly apply to director conduct and to companies dissolved at any time before or after the provisions come into force.

This legislation means that directors will be unable to avoid disqualification under section 6 of the Company Directors Disqualification Act 1986 by dissolving their company before it goes into liquidation. So, if the court is satisfied that a former director of a dissolved company is unfit to act as a director of a company, the court must disqualify them.

This legislation is in addition to recent attempts by the Government to crack down on the practice of “phoenixism” whereby company directors create a second (“phoenix””) company to take over the business established by a predecessor, in turn, leaving behind liabilities with the predecessor.

The Act aims to give the court much more “efficient” powers in disqualifying company directors. For instance, the current rules on disqualifying a director of a dissolved company would first require restoring the dissolved company. Under the Act, this is avoided, providing a faster (and more threatening) power to the court.

Changes to the Regulation of Insolvency Practitioners

The Insolvency Service on 21 December 2021 issued a consultation on the future of insolvency regulation, with responses being requested by 25 March 2022.

The proposals represent a significant reform of the regulations of insolvency practitioners, including a move to a single governmental regulator as opposed to the current various Recognised Professional Bodies. There is also a proposal to reform the bonding regime leading to a potential new compensation regime.

In addition to the written responses to the consultation, the process will also involve meetings with stakeholders and insolvency professionals. Any implementation of IP regulation, such as the creation of a single governmental regulator, will require primary legislation, which is said to be implemented “when Parliamentary time allows”. However, any amendments to the bonding regime may be enacted by quicker secondary legislation.

The relatively short consultation window coupled with the fact that these changes would likely be a significant variation to current IP regulation suggests that the Government is likely to move forward with its proposals in the near future.

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