Changes to restrictions on winding up petitions from 1st October 2021

It has been announced by the Government that from 1st October 2021, the restrictions on the use of winding up petitions imposed by the Corporate Insolvency and Governance Act 2020 (“CIGA”) will cease. CIGA made it very difficult for creditors to successfully petition for the winding up of a debtor company.

Although the CIGA restrictions will end, they will be replaced by more lenient restrictions which will be in place from 1st October 2021 to 31st March 2022 under the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10 Regulations 2021). This represents a further 6-month period where the usual rules for Statutory Demands and Winding-Up Petitions are adjusted. The Government has stated that it wishes to continue protecting small businesses and tenants that have been hit hard by Covid-19, hence the continued restrictions.

From 1 October 2021 to 31 March 2022, in order to present a winding up petition a creditor will need to satisfy four conditions which are as follows:

A: The debt owed is: (i) for a liquidated amount; (ii) has fallen due for payment; and (iii) is not for rent or any other payments that are due under a business tenancy (i.e. service charges) unless the creditor can prove that the non-payment of the debt is not related to the pandemic;

B: The petitioning creditor has delivered a written notice to the company which includes a statement that: (i) the creditor is seeking the company’s proposal for payment of the debt; and (ii) if no satisfactory proposal is made within 21 days of the date of delivery of the notice, the creditor intends to present a winding-up petition against the company (Condition B notice), subject to an application to the Court for an Order dispensing with the need to do so;

C: 21 days have passed since the Condition B notice was delivered and the company has not made an acceptable proposal for the payment of the debt; and

D: the debt owed to the petitioning creditor (or a group of petitioning creditors provided they have all met Conditions A to C) is at least £10,000.

Winding-up petitions will once again be a feasible tool for many creditors, with the exception of landlords whose options for creditor’s actions against tenants in arrears will continue to be restricted in most cases, as will those creditor(s) owed less than £10,000.

Unlike petitioning for the bankruptcy of an individual, a statutory demand is not a compulsory prerequisite to a winding-up petition. However, a creditor can still rely on non-payment of a Statutory Demand to evidence a debtor’s inability to pay their debts subject to the other conditions set out above. As the petitioning creditor will have to wait the same period of time for its Condition B Notice to become effective, serving a statutory demand will not cause any extra delay. The 21-day time periods for a statutory demand and the Condition B Notice can run concurrently. Many companies pursuing debt recovery have found a Statutory Demand to be very effective.

If you require advice or assistance in relation to any of the information contained above, please contact our specialist legal team at your earliest opportunity.