Winding Up Petitions: What's changing as of 1st October 2021
Restrictions on winding up petitions, brought in to protect businesses during the pandemic, were lifted on the 1st October 2021. Peter Worrall, associate solicitor at Moore Barlow, explains what this means, and the power it will give back to creditors to reclaim moneys owed to them and restore their vitally needed cashflow.
Considering the economic turmoil created by the pandemic, the number of businesses forced into compulsory liquidation recently is surprisingly low. The Insolvency Service recorded 1,348 registered company insolvencies in August, which, while a 71 per cent jump year-on-year, is roughly in line with pre-pandemic levels.
Part of the reason for this relatively low level of activity are the protections and restrictions brought in
by the government to support vulnerable businesses during the pandemic. Chief among these, from a credit perspective, are temporary limitations that prevented creditors from petitioning for debtor businesses to be declared insolvent and forced into liquidation.
These restrictions prevented a ‘winding up’ petition being presented on the basis of a statutory demand or other evidence of company’s inability to pay its debts. That is unless the creditor could prove that Covid-19 did not have a financial effect on the debtor, or the debtor would have been unable to pay the debts regardless of Covid.
This was undoubtedly an important measure for the government to introduce so that functional businesses did not succumb unfairly to factors outside of their control – no one would condone telling pubs, clubs and restaurants to close their doors for eight months out of twelve and then allowing them to fall into bankruptcy, for example.
However, as we return to some semblance of economic normality, there are undoubtedly failing businesses being kept on artificial life support and excused from paying their debts. At some point, that must change, and viable creditors given the ability to reclaim debts owed to them so they can ensure their own stability.
As of October 1st, that day has come.
A lifting of restrictions means it is again possible to present winding-up petitions, should a debtor company fail to satisfy a statutory demand, and it will no longer be mandatory to consider the impact of Covid-19 in said petition.
Instead, a creditor will need to satisfy four new conditions in order to present a petition:
- Condition A - the debt owed is for a liquidated amount, has fallen ‘due for payment’ and is not rent or any other payments that fall under a relevant business tenancy agreement.
- Condition B - the creditor notifies the debtor 21 days in advance of their plans to present a petition.
- Condition C - the debtor has not made a satisfactory proposal for payment 21 days after notification.
- Condition D - the debt owed exceeds £10,000.
Although not a complete return to pre-pandemic normality, the relaxing of restrictions gives creditors more power to pursue their debts. These are often payments they need to recover in order to remain solvent themselves.
While forcing another business into the ground is nobody’s objective, winding up petitions are an important tool that can focus a debtor on producing a repayment plan and solve the cashflow challenges that inevitably result when a firm isn’t paid for services rendered in a timely fashion.
To learn more about changes to the rules around winding up petitions, and what businesses can do to
recover debts owed to them, contact firstname.lastname@example.org.