Legal briefing | |

UK Government phases out some – but not all – temporary measures preventing winding-up petitions

Overview

In response to the COVID-19 pandemic, legislation was introduced during 2020 to prevent creditors filing statutory demands and winding up petitions on the basis of their debtor's inability to pay its debts, unless it could be shown that non-payment was not a result of the pandemic. These temporary measures had been extended a number of times during the pandemic as businesses continued to suffer the effects of multiple lockdowns and trading restrictions, but are now gradually being phased out. 

From 1 October 2021, most creditors will be able to present winding up petitions, subject to a number of additional temporary conditions. In particular, in order to issue a winding up petition before 31 March 2022, the creditor must be owed at least £10,000. Before presenting a winding up petition, the creditor must have made a formal request to the debtor seeking proposals for the payment of the debt. If the debtor has not made a payment proposal which is to the creditor's satisfaction within 21 days of the formal request, the creditor can proceed to present a winding up petition. There is no guidance as to what might constitute a satisfactory proposal, but creditors will need to explain to the Court when presenting a winding up petition why any payment proposals made by the debtor were not to their satisfaction. There does not appear to be any requirement for the creditor to be acting reasonably when rejecting payment proposals. Creditors will have the ability to apply to Court to disapply or reduce the timing for the payment proposal procedure. There is an anomaly in that, the £10,000 limit does not apply to the statutory demands, which can still be served if the de minimis £750 limit is met. However, we would anticipate that any winding-up petition based on such an unpaid statutory demand would be scrutinised by the court, applying the tests above.

There is an important sting in the tail for landlords. Commercial landlords will continue to be prevented from presenting winding up petitions in respect of unpaid rent (or other amounts due under their leases) unless they can prove that non-payment is not due to the financial effect of the pandemic, regardless of the amount owed. As outlined in our previous briefing note on 17 June 2021, the Government plans to introduce further legislation to address the issue of commercial rent arrears which have built up during the pandemic where businesses have been affected by COVID-19-related closures. The restrictions on landlords presenting winding-up petitions in relation to amounts due under commercial leases will apply until 31 March 2022, which dovetails with the lifting of restrictions on forfeiture rights and, presumably, allows the Government time to formulate legislation to address this issue. Landlords still retain rights to take certain action against commercial tenants, including commencing County Court proceedings for debt recovery.

Whilst these additional measures will provide companies with additional notice where a creditor intends to take action to recover their debt, companies with overdue debts (other than commercial lease liabilities) could face a winding up petitions as early as 22 October 2021 (or earlier if the creditor applies to Court to disapply the payment proposal procedure). The UK Government has been quick to implement and extend measures safeguarding businesses impacted by COVID-19, but these changes clearly indicate that the Government is looking to wean businesses back to surviving in the "new normal". The previous measures undoubtedly saved many businesses from formal insolvency procedures during the pandemic, but it remains to be seen whether the measures simply delayed the inevitable for certain companies. Debtors would be well advised to consider their options without delay if they anticipate increased creditor pressure.   

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