Winding up petitions are back! (albeit with some restrictions)


01 October 2021

With effect from 1 October 2021 the restrictions (introduced shortly after the start of the pandemic) on creditors serving statutory demands and issuing winding-up petitions will no longer apply.

However, creditors are not reverting to the position they were in before the start of the pandemic. The government has introduced another set of restrictions (contained in The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021), which will apply from 1 October 2021 and which will remain in force until 31 March 2022.

During this period there are four conditions that must be met for a winding-up petition to be issued.

  1. The debt is for a liquidated sum and is not an “excluded debt” (being rent payable by a tenant under a commercial lease);
  2. The debtor has been given the prescribed notice of the creditor’s intention to issue a winding-up petition;
  3. Following a 21 day period, the debtor has not made proposals for payment of the debt that are to the creditor’s satisfaction; and
  4. The debtor owes the creditor £10,000 or more (increased from £750).

The government’s intention in introducing these restrictions is to encourage debtors and creditors to work together to avoid winding-up petitions from being issued, most obviously by agreeing payment plans for repayment of outstanding debts.

The regulations do not contain any requirement for a creditor to act reasonably when considering a debtor’s proposal for payment of a debt. As long as the debt is £10,000 or more and the other requirements of the regulations and the Insolvency Act 1986 are satisfied, a creditor has an unfettered right to issue a winding-up petition. Although the making of a winding-up order is a discretionary remedy, we consider it is unlikely that a court would refuse to make a winding-up order on the basis that it considered a creditor’s rejection of a payment proposal to be unreasonable.

Nevertheless debtors who are served with a 21 day notice of an intention to issue a winding up petition by a creditor should use that time to seek the urgent advice of a licensed insolvency practitioner or insolvency lawyer. There may be a number of options which can be pursued in this scenario which will avoid a winding-up petition from being issued, including a payment plan or an alternative insolvency process such as administration or a company voluntary arrangement. These alternatives are likely to result in a better outcome for the relevant stakeholders (and a better realisation for the creditor body) than a winding up petition being issued and a winding-up order being made.

As well as the additional requirements imposed by these latest regulations, one important exception to the right to bring winding up proceedings remains. For commercial landlords it is still not possible to use this route to pursue rent arrears which have accrued since March last year. Whilst the Regulations provide that a landlord can (theoretically) make an application if the reason for withholding payment is not due to reasons caused by the pandemic, it will be extremely difficult for a landlord to prove this. The government still expects landlords and tenants to come to the negotiating table and is threatening to impose a mandatory (and binding) arbitration process to deal with such arrears where the parties cannot reach agreement. The details of the scheme have not yet been announced.

Author

Matthew Weston

Legal Director

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