What are the new rules on winding-up petitions?
Despite the economic impact of coronavirus, the number of formal insolvencies has been remarkably low.
This has largely been due to the financial support provided by the government, but restrictions on statutory demands and winding-up petitions, via the Corporate Insolvency and Governance Act 2020, have also played their part.
As part of a general scaling down of government support measures, those restrictions were relaxed from 1 October.
A winding-up petition is a draconian measure which, even if it is not successful, can have very serious consequences for a company.
Although the courts have stated that they should not be used as a tool for debt collection, the reality is that they often are, not least by HMRC.
Prior to 1 October, creditors were restricted from presenting winding-up petitions based on statutory demands, and they could only do so in circumstances where they had reasonable grounds to believe that either (a) coronavirus had not had an effect on the company or (b) the company would have been unable to pay its debts even if coronavirus had not had an effect on the company.
A winding-up petition is a draconian measure which can have very serious consequences
This resulted in a significant reduction in winding-up petitions because it was difficult to satisfy the above grounds, other than in cases where the relevant debt pre-dated the coronavirus pandemic.
The restrictions were rolled back on 30 September, and it is now no longer necessary to consider the effect of coronavirus on a company. Instead, more limited measures, which are due to remain in place until March 2022, have been introduced, and winding-up petitions can now be presented if the following conditions are satisfied:
- The debt must be at least £10,000;
- The debt does not relate to any unpaid rent or other sums due under a lease which is used for business purposes and is unpaid because of the financial effect of coronavirus;
- the creditor has (absent a court order exempting them from doing so) delivered a written notice to the company containing, amongst other things, a statement that if no satisfactory payment proposal is made within 21 days, the creditor intends to present a winding up petition; and;
- 21 days has in fact passed.
Importantly, landlords will be unable to present petitions based on commercial rent arrears and this is perhaps unsurprising in circumstances where restrictions on forfeiture will remain in place until March 2022.
The new measures otherwise appear to have been designed to help small businesses that owe relatively small sums and to encourage engagement between debtors and creditors, though the extent to which the courts will scrutinise refusals to accept payment proposals remains to be seen.
Debtor companies will nonetheless once again have to get used to reacting to statutory demands and winding-up petitions.
This renewed threat means they may need to engage with their creditors and, in some circumstances, seek professional advice on the options available to them.
- To read this feature in full and access further Lancashire business news, advice and analysis subscribe to Lancashire Business View magazine or join the LBV Hub from just £2.50 per month. Click here to subscribe now.