Out with the Old Temporary – In with the New Temporary: Issuing Winding Up Petitions from 1 October 2021

Articles | Thu 30th Sep, 2021

From 1 October 2021, the temporary restrictions in Schedule 10 of the Corporate Insolvency and Governance Act 2020 (CIGA) are being replaced[1].

These changes lift the current restrictions on issuing winding up petitions, and replaces them with less stringent and more refined restrictions which are due to remain in place until 31 March 2022.

This means that except in the case of commercial rent arrears or those with debts worth less than £10,000, winding up petitions will be a viable tool for many creditors once again from 1 October 2021.

For those still grappling with Petitions that started life under the previous restrictions, guidance on those restrictions can be found here.

Summary of the new requirements

A winding up petition may now only be presented on the grounds that a company is unable to pay its debts if four conditions are met[2]:

Condition A[3]:

Can now Petition in respect of a debt that is:

1. For a liquidated amount
2. Has fallen due
3. Not a rent or payment under a business tenancy which is unpaid by reason of the financial impact of COVID-19 (‘an excluded debt)[4]

Condition B[5]:

Prior to Petitioning the Petitioner must write to the debtor company. This ‘warning notice’ must, together with other formalities identifying the creditor:

1. Seek the company’s proposals for payment[6]; and
2. State that the creditor intends to present a winding up Petition if no satisfactory proposal is made within 21 days of the date of delivery of the notice[7]

Condition C[8]:

The Creditor may Petition, if:

1. After 21 days from the date the debtor company was written to, no proposal satisfactory to the creditor is received

Condition D[9]:

1. If the debt owed to a single Petitioner is, or where presented by more than one petitioner is for a combined total of, at least £10,000.

Any Petition then issued should state that the requirements of para.1 of Schedule 10 to CIGA are met and that either no proposal has been made or provide a summary of the reasons why the proposals are not to the creditor’s satisfaction.[10]

An application to court can be made to disapply Conditions B and C or shorten the period under Condition C.[11]

Save in respect of rent and other payments due pursuant to commercial tenancy, there is no longer any requirement to satisfy the test introduced by CIGA 2020 as to the financial effect of COVID-19 on the debtor company.

Initial Thoughts

This amendment significantly increases petition threshold to £10,000 a limit clearly intended to protect SMEs as they recover from the pandemic and to restrain aggressive collectors of smaller debts.  However, it is possible that more than one creditor to whom a combined amount in excess of £10,000 is owed could petition jointly to surpass this new limit.

The new limit appears to apply equally to judgment debts, so no longer will there be no answer to a Petition based upon a judgement debt if it is below £10,000.  One way creditors may get around that for judgments a little shy of the threshold is by the addition of post-judgment interest.

Whilst the prohibition on issuing a Petition on an unsatisfied statutory demand is removed, the notice requirement is not unlike issuing a statutory demand.

Time will tell how the court will assess a creditor’s reasons for rejecting any proposals put for forward by the debtor, but until guidance is forthcoming, it will simply be a matter for the particular creditor to decide whether a proposal is satisfactory or not.  A corollary of this point is that there is no requirement to properly consider any proposal put forward, but the court could take it into account when exercising its discretion, as so it may be wise not to reject sensible propositions out of hand.

One further consequence of the changes is that there may be an increase in applications to restrain presentation of a Petition towards the end of the 21-day period.

[1] The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 – https://www.legislation.gov.uk/uksi/2021/1029/made/data.pdf

[2] Para.1(1) of Schedule 10 to CIGA

[3] Para.1(2) of Schedule 10 to CIGA

[4] This is based upon the moratorium on forfeiture and rent arrears recovery and is only in force until 25 March 2022

[5] Para.1(3) of Schedule 10 to CIGA

[6] Para.1(3)(e) of Schedule 10 to CIGA

[7] Para.1(3)(f) of Schedule 10 to CIGA

[8] Para.1(7) of Schedule 10 to CIGA

[9] Para.1(8) of Schedule 10 to CIGA

[10] Para.2(2) of Schedule 10 to CIGA

[11] Para.1(9) of Schedule 10 to CIGA