Insights

Tanya Seevaratnam

Published 6 April 2022
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Winding Up petitions – Return to pre-Covid Rules

The Corporate Insolvency and Governance Act 2020 imposed temporary restrictions on creditors who sought to present a winding-up petition. The restrictions were designed to reflect the challenges posed by lockdown and the pandemic, but these restrictions have come to an end. The pre-Covid regime will now resume.  

The restrictions

To provide some measure of help and protection to companies struggling financially as a result of the pandemic, the Corporate Insolvency and Governance Act 2020 imposed a number of conditions on creditors. These included a requirement to serve a formal notice (Section 10 Notice) in a prescribed form before presenting a winding up petition. The form had to request that the debtor company concerned provide repayment proposals within 21 days (commencing from the date of service). The regime also provided that the debt had to be £10,000 or more.

Originally in place from 1 March 2020 until 1 October 2021, the restrictions were duly extended to 31 March 2022 but have now come to an end.

Pre pandemic regime resumed from 1 April 2022

As a result of the lifting of these restrictions, as of 1 April 2022 creditors will be able to present winding up petitions in respect of debts of £750 or more. Creditors also no longer have to serve the Section 10 Notice or provide a debtor company with 21 days to present a reasonable repayment proposal.

Instead, and in line with the regime in place before the pandemic, creditors may rely on a statutory demand that has not been paid as evidence that a company cannot pay its debts, and this is sufficient grounds for presenting a winding-up petition. A creditor may also serve a letter on a debtor company demanding payment in full within a relatively short specified period of time, and if no response or payment is received, a winding-up petition may then be issued.   However, by way of reminder winding up proceedings are only suitable for debts that are undisputed and for a liquidated sum that is payable immediately.

Comment

The first thing to bear in mind in respect of the lifting of these restrictions is that they do not apply to the collection of commercial rents. These are now governed by the Commercial Rent (Coronavirus) Bill which came into force on 25 March 2022 and prevents a winding-up petition from being presented against a business tenant for rent arrears if those arrears accrued during a period of forced closure during the pandemic.

That said, the lifting of restrictions will inevitably be welcomed by many creditors who have not been able to take action in relation to debts for over 2 years. However, with the country’s economy under more pressure than ever before, it remains to be seen how many creditors will take advantage of these changes and whether the lifting of restrictions is just too early for many small businesses.

If you have any concerns about pursuing a debtor or are concerned about debts you may have, please get in touch with Tanya Seevaratnam or Chris Ward of our Insolvency & Dispute Resolution Department.

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