COVID-19: The End of Winding-Up Petition Restrictions and What This Will Mean for Creditors
- AuthorEmily Summer
On 26 June 2020, after a speedy progression through Parliament, the Corporate Insolvency and Governance Act 2020 (CIGA) came into force. Restrictions were implemented by CIGA under Schedule 10 to restrict the presentation of debt related winding-up petitions where a company could not pay its bills due to the COVID-19 pandemic.
Prior to 1 October 2021, there were restrictions imposed by CIGA on creditors who wished to present a winding-up petition against a company based on a statutory demand between 1 March 2020 and 30 September 2021. It was also confirmed that a creditor could not present a winding-up petition between 1 March 2020 and 30 September 2021 based on a company’s inability to pay its debts (including rent), unless the creditor had reasonable grounds for believing COVID-19 had not had a financial impact on the company, or that the company’s debt issues would have arisen in any event.
The restrictions were initially due to end on 30 September 2020 but were extended until 30 September 2021.
The Current Position
In September 2021, The Insolvency Service announced that the temporary protections for UK businesses from insolvency would be phased out from 1 October 2021.
Following the announcement from The Insolvency Service, companies will no longer be able to rely on the protections offered in CIGA and the Schedule 10 restrictions on presenting winding-up petitions and statutory demands would end on 30 September 2021.
That being said, it is not smooth sailing from here for creditors. Instead, new temporary measures now apply until 31 March 2022. In particular, these temporary measures are aimed to protect smaller businesses.
The temporary measures include:
- An increase of the debt threshold from £750 to £10,000 which must be owed by a company to a creditor before that creditor can present a winding-up petition; and
- A requirement that before presenting a winding-up petition, creditors must seek proposals for payment from a debtor business, giving them 21 days to respond before they can proceed with winding-up action.
What about commercial rent arrears?
The UK Government has also confirmed that the restrictions preventing commercial landlords from seeking winding-up petitions relating to commercial rent arrears will stay in place. There will also be a new arbitration scheme next year, which will cover commercial rent debts accrued during the pandemic.
What next for creditors?
Once again, winding-up petitions will become a viable tool and the loosening of the CIGA restrictions will be welcomed by many creditors. Although the courts have stated that winding-up petitions should not be used as a method of debt collection they are commonly used to focus a debtor’s attention on paying an outstanding debt.
Whilst the increase of the debt threshold is aimed at preventing a creditor who is owed a relatively low sum exercising undue pressure under the winding-up process, this may well place hardship on smaller businesses, for whom the recovery of debts below the £10,000 threshold could be vital for their own recovery.
Should you have any have queries in relation to the ending of temporary insolvency restrictions, please do not hesitate to get in touch with Emily Summer on 01792 529 610 or email Emily.Summer@jcpsolicitors.co.uk