A new dawn for presenting winding-up petitions

John Quicler, a senior associate within our Banking and Finance Litigation team, sets out the recent changes in relation to the presentation of winding-up petitions following the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (SI 2021/1029), which came into force on 29 September 2021.

Background

Part 2 of Schedule 10 of the Corporate Insolvency and Governance Act 2020 placed temporary restrictions on creditors from the 1 March 2020 on the presentation of winding-up petitions and orders where financial difficulties where attributable to the Covid-19 pandemic. The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No.2) Regulations (SI 2021/718) extended this restriction until 30 September 2021. 

As the UK has started to lift its restrictions, parliament has attempted to strike a balance between the concerns of the business community and creditors seeking to recover their long-overdue debts by phasing out the temporary restrictions placed on the presentation of winding-up petitions. 

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (SI 2021/1029) now defines the ‘relevant period’ as being from 1 October 2021 to 31 March 2022 and imposes a number of conditions that are to be satisfied before presenting a winding-up petition. Importantly, there is no longer any requirement for the creditor, in support of their winding-up petition, to demonstrate that Covid-19 has not had a financial effect on the company or the debt would have arisen regardless of Covid-19.

New regulation

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021(SI 2021/1029)  provides that during the new ‘relevant period’, being 1 October 2021 to 31 March 2022, a creditor may not present a winding-up petition against a registered or unregistered company unless the specified conditions A to D are satisfied:

1. The creditor must be owed a debt by the company that is liquidated, has fallen due for payment and is not an excluded debt. An excluded debt is one that relates to unpaid rent or other sums under the terms of a lease used for business purposes that remains unpaid due to the financial effect of Covid-19.
2. The creditor must have delivered written notice to the company providing full particulars relating to the outstanding debt and a statement confirming that they are seeking the company’s repayment proposals. There are prescribed contents for the request, including notice of intention to present a winding-up petition in the absence of any proposal within 21 days of delivery. 
   This is a new mandatory requirement on creditors to seek repayment proposals from the company prior to the presentation of a winding-up petition. This may be particularly disappointing to creditors requiring immediate payment in full to assist with their own financial difficulties, given the delays caused by the previous temporary restrictions in place.
3. This provides that at the ‘end of the period of 21 days beginning with the day on which condition B was met the company has not made a proposal for the payment of the debt that is to the creditor’s satisfaction’. 
   This may cause future complications that a company may highlight to the courts that their repayment proposal has been unreasonably refused by a creditor, and the court may decline to adopt a subjective view.
4. The petitioned debt, or sum of debts where the petition is to be presented by more than one creditor and conditions A to C are met in respect of each, is £10,000 or more. 
   This is a substantial increase from the previous debt threshold of £750 or more, and may restrict a number of creditors in their attempts to pursue smaller companies. 

Implications

It is clear that the phasing out of the temporary restrictions in relation to the presentation of winding-up petitions aims to give many small companies that would be viable, were it not for the pandemic, much-needed time to get back on their feet as the economy begins to return to normal and protect them from immediate creditor enforcement action for smaller debts or rent arrears. 

Creditors will however be able to rely once again on non-payment of a debt detailed in a statutory demand to evidence the company’s inability to pay their debts as they fall due provided that all the conditions are met and proceed after the expiration of 21 days from service.

Creditors can still rely on sending winding-up letters but need to ensure they comply with Condition B so can no longer reference a three-day timescale, as they will need to allow 21 days for a response and should seek proposals as well as making demand. 

The added protection should allow those companies with unavoidable accrued arrears caused by the pandemic time to reach repayment proposals with their creditors or take advice from restructuring professionals without facing the threat of being compulsorily liquidated. However, it remains to be seen whether the new regulation is a further extension of the payment holiday afforded to companies during the pandemic and creates another area of uncertainty for creditors in their recovery attempts.