COVID-19 / Coronavirus legislation
In Scotland, the Scottish Parliament has passed two key pieces of legislation to provide debtors with certain protections during the COVID-19 pandemic.
The Coronavirus (Scotland) Act 2020 came into force on the 7th April 2020. The Act protects debtors by providing a temporary extension on certain moratoriums on diligence, from a 6 week to a 6-month moratorium
period. The Act removes the prohibition against benefitting from more than one moratorium in any 12-month period. This means those who have recently had a moratorium are not excluded from the effect of the changes.
For commercial leases, the Act also allows tenants a minimum of 14 weeks protection from lease termination, as opposed to the previous 14 days, in the case of non-payment of rent. This extended minimum period
applies to all commercial property leases and includes those where a warning notice has already been issued. This measure is in force until 31st March 2021.
The Coronavirus (Scotland) (No 2) Act came into force on the 27th May 2020. The Act provides further protection for debtors by introducing additional temporary changes to the bankruptcy
process. These are listed below:
- For individual debtors, the minimum debt level they must owe before a creditor is able to make them bankrupt, has increased from £3,000 to £10,000.
- For individual debtors, the upper limit for the availability of the Minimal Asset Process (MAP) has increased from £17,000 to £25,000. The MAP is a route to bankruptcy for a debtor with a total asset worth less
than £2000 and who meets certain other conditions.
- For individual debtors, the deadline for sending proposals for debtor’s contribution has increased from 6 to 12 weeks.
- Fees for bankruptcy applications have been reduced.
In the UK, the Coronavirus Act 2020 came into force on the 25th March 2020. This legislation has made changes to the law on commercial leases. Since this date, a right of re-entry or forfeiture for non-payment of rent,
under a business tenancy, cannot be enforced until 31st December 2020.
Alongside this Act, The Corporate Insolvency and Governance Bill came into force on 26th June 2020. This Act introduces both temporary and permanent insolvency measures.
The permanent reforms are listed below:
- A moratorium provides companies with an initial 20-business-day stay from creditor action. For example, during those 20 days a creditor cannot commence insolvency proceedings against them. This will
allow the company some time to consider a rescue plan. The moratorium can be granted to companies that are unable, or are likely to become unable, to pay their debts when the fall due.
- A ‘restructuring plan’ procedure is be available for companies facing financial difficulties that affect their ability to carry on business.
- There will be a ban on clauses which permit termination of a contract due to the bankruptcy or insolvency of a party. For example, a supplier will be prevented from terminating a supply contract on the basis of
a contracting company entering into an insolvency procedure.
The temporary measures include:
- A voidance of statutory demands issued against companies during the pandemic. This means creditors are only permitted to petition for the winding-up of a company where they have reasonable grounds to
believe that either the company’s financial position has not worsened because of COVID-19, or that the relevant insolvency condition would have arisen without the occurrence of COVID-19. The
creditors presenting a winding up petition on the grounds of inability to pay debts between 27th April and 31st December 2020, or where the demand was made during the period 1st March to 30th
- A suspension of the Wrongful Trading rules. Where there is no reasonable prospect of avoiding insolvent liquidation, this suspension will mitigate the personal liability of company directors and allow them to
- • Finally, the Act temporarily grants an extension to the account filing deadline for public companies. For public companies with a filing deadline that falls between 26 March 2020 and 29 September 2020,
the deadline will be extended to the earlier of 30 September 2020 and 12 months from the end of the company’s accounting period. It also relaxes conditions relating to meetings for companies and other bodies,
including extending the period for annual general meetings. The relaxation of these provisions will apply from 26 March 2020 until 30 September 2020.
The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 came into force on 24th April 2020 and apply to enforcement action taken under the Commercial Rent
Arrears Recovery (CRAR) process. The regulations provide the following changes to commercial rent arrears:
- There is an extension, in certain circumstances, to the date by which an enforcement agent must have taken control of goods if the notice of enforcement is not to lapse; and
- In certain circumstances, an extension of the 2-year enforcement certificate that the enforcement agents must hold in order to act in that capacity.
Further amendments to CRAR apply from June under the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (No 2) Regulations 2020. These are listed below:
- The threshold before CRAR can be exercised has increased from 90 days to 276 days’ rent arrears for enforcement notices given between 24th June and 31st December 2020.
- There is a further extension to the validity period of the enforcement certificate that enforcement agents must hold.
The content of this website is for general information only and should not be relied upon. It is not intended to be construed
as legal advice and should not be treated as a substitute for specific advice.