New rules on the use of winding up petitions

The Government has, in part, brought to an end the previous temporary restrictions surrounding a creditor’s ability to present a statutory demand and winding up petitions against a corporate debtor.  Previous restrictions, which were introduced under the Corporate Insolvency and Governance Act 2020 in a response to the Covid 19 pandemic, were in place from June 2020 and expired at the end of September 2021.

From 1st October 2021, those restrictions have been replaced by new measures brought about under the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10 Regulations 2021) (the Regulations).

Under the Regulations, which are temporary and due to last until 31st March 2022, a creditor will be able to present a winding up petition against a corporate debtor where:

• The debt is for a liquidated amount, which has fallen due and is not an ‘excluded debt’ (see below) (Condition A)
• The debtor has been given written notice of the debt and an opportunity to provide repayment proposals for that debt (Condition B)
• 21 days have lapsed since the debtor was given notice and no satisfactory repayment proposals have been provided to the creditor (Condition C)
• The debt must be for at least £10,000 (or for a combined total of at least £10,000 if multiple debts are due from the same debtor) (Condition D)

Ordinarily all four Conditions must be satisfied.  A creditor can apply to the Court for an order stating that Conditions B and C do not apply or that the 21 day time limit set out in Condition C can be shortened.  However, it remains to be seen on what basis a Court will grant a creditor relief from those Conditions.

The written notice referred to in Condition C must contain prescribed information surrounding the creditor, the debt, a statement that the creditor is seeking the company’s proposals for the payment of the debt and a statement that if no satisfactory proposals are made within 21 days the creditor intends to present a winding up petition against the company.

There is no provision within the Regulations for what constitutes “satisfactory” repayment proposals and so therefore this appears to remain subjective and at the creditor’s discretion.  However, a creditor must explain in any petition they subsequently present why the proposals are not to its satisfaction and hence a creditor should be dissuaded from exercising its discretion arbitrarily.

If a winding up petition is to be issued, the Regulations provide that additional wording must be included within the petition under rule 7.5(1) of the Insolvency (England and Wales) Rules 2016.

There is a notable exception to what debts a petition can be presented in respect of, specifically commercial rent or any sums payable under a relevant business tenancy.  If those debts are not paid because of the Covid pandemic, then those debts will be classed as ‘excluded debts’ and a petition cannot be presented in respect of them even if they exceed £10,000.

The Regulations will be welcome news for small businesses, seeing the threshold for a creditor’s debt which allows them to present a petition effectively jump from £750 to £10,000.  However, clearly they will prove unwelcome news for landlords looking to try and recover rent arrears from tenants accrued since or because of Covid, as well as creditors in general.

Time will tell if the Regulations will be extended at the end of March 2022.  This is what happened on several occasions to the temporary restrictions initially brought under the Corporate Insolvency and Governance Act 2020.  As such, this is a distinct possibility.  So watch this space.

For further information on insolvency law related issues please contact Christopher Buck, Associate Partner and Solicitor, on 01908 660966 / 01604 828282 or by email at Christopher.Buck@franklins-sols.co.uk.