As of 1 April 2022, the temporary restrictions on issuing winding-up petitions will come to an end, as part of a general relaxation of coronavirus-related legislation. Peter Barlow examines if this will lead to a surge of new winding-up petitions being presented against companies that are unable to pay their debts.
Since the implementation of The Corporate Insolvency and Governance Act 2020 on 26 June 2020 (which applied retrospectively from 26 March 2020), various restrictions on winding-up petitions have been in place, with the intention of providing breathing space, for small businesses and commercial tenants in particular, who were financially affected by the coronavirus pandemic and the various lockdowns.
With the economy recovering for the most part from the pandemic, and there having been a partial relaxation of restrictions on 1 October 2021, most of the final restrictions on winding-up petitions are now due to end on 31 March 2022.
What restrictions were in place after 1 October 2021?
Under the Corporate Insolvency and Governance Act 2020, between 1 October 2021 and 31 March 2022, creditors could only present a winding-up petition against a company if the following conditions were met:
- The debt was for a fixed or determinable amount exceeding £10,000, based on the company's inability to pay its debts;
- The debt did not relate to unpaid rent or other sums due under a lease which was used for commercial purposes and was unpaid because of the financial effect of coronavirus;
- The creditor had delivered a prescribed written notice to the company of its intention to issue a winding-up petition unless satisfactory payment proposals were received within 21 days of the notice; and
- 21 days had passed without a proposal to the creditor's satisfaction.
It is important to note that during this period, a creditor was able to rely on the non-payment of a statutory demand to show a company's inability to pay their debts, but they were nonetheless unable to present a winding-up petition unless the other conditions were met.
What is the position from 1 April 2022?
The removal of these restrictions means, for the most part, that creditors will be able to commence winding-up proceedings against companies as they would have done prior to the pandemic. Therefore, creditors will once again be able to present petitions in respect of debts of in excess of £750, and companies may be wound up in in circumstances where this otherwise would not have been possible prior to 1 April 2022.
The key exception to this is that following the implementation of the Commercial Rent (Coronavirus) Act 2022 on 25 March 2022, winding-up petitions, and bankruptcy petitions for that matter, cannot be presented against commercial tenants in respect of arrears of rent which accumulated during a period of forced closure during the pandemic. For further details of when these periods of forced closure were in effect, and additional considerations where a debt relates to commercial rent arrears, Hasin Amin of our Property Litigation team provides further insight here.
What effect will these changes have?
Despite the court's repeated guidance that winding-up petitions should not be used as a means of debt recovery, the reality is that they are commonly used to focus a company's attention on paying outstanding sums.
With that in mind, we anticipate an influx of winding-up petitions from 1 April 2022 as creditors will seek payment of debts which may have been outstanding from as early as March 2020. This will be welcome news to creditors who have struggled to recover smaller debts in particular throughout the pandemic, but, equally, small and medium-sized businesses, which are now facing rising costs, will be concerned at the prospect of a winding-up petition being brought against them in circumstances where they have outstanding debts of more than £750.
Whether you are a creditor seeking recovery of an outstanding debt or an alleged debtor that is faced with a winding-up petition, or the threat of winding-up proceedings, it is vital to seek professional advice at the earliest possible opportunity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.