Winding Down Of Winding Up Restrictions28 Sep 2021 // Insights
Solicitor Mark Allan discusses imminent changes to company winding up procedure.
The Corporate Insolvency and Governance Act 2020 brought in temporary restrictions on winding up petitions, affording protection to thousands of UK businesses.
The restrictions include:
- An outright prohibition on winding up petitions based on statutory demands; and
- A prohibition on winding up petitions based on other evidence of a company’s inability to pay its debts, unless petitioning creditors have reasonable grounds to believe that coronavirus (i) has not had a financial effect on the company, or (ii) the company would have been unable to pay its debts even if coronavirus had not had a financial effect on the company.
(The “Coronavirus Test”)
From 1 October 2021, the temporary restrictions will be phased out and new legislation will prevent petitioning creditors from presenting a winding up petition against a company unless:
- The debt owed is £10,000 or more;
- The petitioning creditor has delivered written notice to the company, sought proposals for the payment of the debt, and provided 21 days for a response; and
- The debtor has either failed to respond or failed to provide a proposal that is to the creditor’s satisfaction.
These measures will remain in force until 31 March 2022.
A debt relating to commercial rent arrears or other payments that a tenant is liable to pay, unpaid by reason of a financial effect of coronavirus, is “excluded debt” and in such a case a landlord will not be able to present a winding up petition.
It comes as no surprise that the Government has chosen to taper down its support for companies, rather than pull the rug out from under their feet.
Once again, creditors will be able to present a winding up petition based on a statutory demand and the Coronavirus Test no longer applies; welcome news for creditors.
Smaller businesses will feel the most benefit from these changes, typically owing smaller debts.
The requirement for petitioning creditors to seek payment proposals from companies could lead to improved communications and increase the number of out of court settlements, however what is deemed a satisfactory proposal appears to rest solely in the petitioning creditors’ hands.
We expect to see an increased number of winding up petitions filed with the Court in the last quarter of the year. Companies should seek professional advice in cases where they are concerned with the repayment of debt, including those incurred before and during the pandemic. Lenders and creditors who are owed £10,000 or more should seek professional advice to consider their options to recover their debts.
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