Winding up petitions: new restrictions

Photo by Pixabay on
23 September 2021

The current restrictions on winding up petitions are due to expire on 30 September 2021. They will be replaced by more limited restrictions which are set out in the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021. 

According to the Insolvency Service, the changes are aimed at helping High Street businesses and also the hospitality and leisure sectors which were hit hard during the pandemic. 

From 1 October 2021 to 30 March 2022, creditors will no longer be prohibited from presenting a winding up petition after serving a statutory demand.

A number of tests must be satisfied before winding up petition may be presented:

  1. The creditor must be owed a least £10,000.
  2. The creditor must have made a formal request for proposals for payment of the debt.
  3. If the debtor has not made a satisfactory proposal within 21 days of the formal request for proposals, then the petition may be presented.

There is no guidance setting out what constitutes a satisfactory proposal, but a creditor must be able to explain to the court why any proposals received were not acceptable. 

Creditors will still be prohibited from presenting a petition if the debt relates to sums due under a commercial lease, unless the creditor can show that debtors' failure to pay is not because of the pandemic. The restrictions relating to commercial leases will ensure that the insolvency processes are in line with the continued restrictions on evicting commercial tenants, which will continue until the 31 March 2022. The government is setting up a rent arbitration scheme to address debt due under commercial leases, relating to the pandemic. Landlords are still able to commence court proceedings for debt recovery.

The changes to the restrictions will mean that debtors managing overdue debts will come under significant creditor pressure. For business which have been owed money for some time, the changes will be welcomed. However, the significant increase in the threshold from £750 to £10,000 will mean that creditors managing a large number of smaller debts may find the new regulations of limited use.

© Melissa Worth, September 2021

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