No time like the PRESENTation of a winding up petition
Some of the restrictions on presenting a winding up petition against corporate entities will come to an end on 30 September 2021 and commercial debtors become vulnerable to creditors wishing to take drastic action in the recovery of bad debts.
The protection was set out in the Corporate Insolvency and Governance Act 2020 (CIGA) which restricts the presentation of a winding-up petition against a company based on a statutory demand that was served between 1 March 2020 and 30 September 2021.
Similarly, the CIGA prevented the presentation of a winding-up petition for the same period based on the company's inability to pay its debts unless there were reasonable grounds for believing COVID-19 had not had a financial effect on the company or the debt issues would have arisen regardless of the effects of the global pandemic.
Whilst this was not a welcomed approach by creditors it was a life line for corporate entities enabling them to continue to trade and survive the effects of the global pandemic.
So What Next?
Restrictions on winding-up petitions are being eased significantly, in that it will no longer be necessary to consider the financial effect of Covid-19 on the company. Instead, from 1 October 2021 until 31 March 2022, in order to present a petition a creditor will need to satisfy the following four conditions:
A. The debt owed:
i) is for a liquidated amount;
ii) has fallen due for payment; and
iii) is not rent or any other payments (e.g. service charges) that are due under a relevant business tenancy;
B The petitioning creditor has delivered a written notice to the company containing, among other things, a statement:
i) that the creditor is seeking the company’s proposal for the payment of the debt; and
ii) that if no satisfactory proposal is made within 21 days of the date of delivery of the notice then the creditor intends to petition for the company’s winding-up (a Condition B Notice);
C 21 days have passed since Condition B Notice was delivered and the company has not made a satisfactory proposal for the payment of the debt;
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.
Prior to presenting a winding up petition some creditors will chose to serve a statutory demand which is a demand for payment of a debt. When a statutory demand has been served, a debtor has 21 days to make payment failing which they risk insolvency. If the debt is disputed on substantial grounds then an urgent application can be made to set aside the statutory demand within 18 days of being served with the statutory demand.
In order to prevent potential insolvency actions from creditors or the service of a statutory demand, corporate debtors may now wish to take proactive steps in talking to their creditors in order to negotiate and agree a mutual repayment plan or a way forward in order to negate the risk of insolvency.
If you need any assistance please contact Talbots Law Dispute Resolution Department, by emailing Josh Millichamp or calling the team on 0800 118 1500.
For more information please contact us