Key Changes to the Restrictions on Presenting Winding-up Petitions

Temporary measures introduced to protect businesses negatively affected by the Coronavirus pandemic, came to an end on 30 September 2021 and have been replaced with less restrictive measures from today under The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (the “Regulations”). The new Regulations are deigned to prevent the flood gates opening and retain some protection for recovering businesses until 31 March 2022.

The key points to note from the Regulations are as follows:-

  1. Creditors must send a notice to a corporate debtor providing 21 days to respond with proposals for paying the debt.
  2. The debt (or combination of debts) must be at least £10,000.
  3. Creditors may not present a winding-up petition in respect of unpaid commercial rent unless they can prove that non-payment of the debt is not related to the Coronavirus pandemic.

21 Day Notice

Creditors may once again serve and rely on statutory demands as evidence of a corporate debtor’s inability to pay its debts as they fall due. However, the creditor must also comply with the 3 points above. A notice must be sent seeking the corporate debtor’s proposal for payment. If the proposal for payment is not acceptable to the creditor, the creditor will be required to explain why it is not satisfactory. It is difficult to gauge how the court will view creditors’ refusals of payment proposals and how lenient they may be on corporate debtors.

The 21day period can be shortened if agreed by the court. We will have to wait and see if, in practice, such an application would be any quicker than waiting 21 days.   

Debt must be at least £10,000

There is some speculation as to whether the minimum level of debt should be increased from £750 when these restrictions come to an end in March 2022. The bankruptcy limit was updated and increased to £5,000 in 2015.

Exception – Commercial Rent Arrears

If a debtor claims that their inability to pay is related to the Coronavirus pandemic, the burden of proof shifts to the creditor to prove that it is not related. This often a very difficult thing to establish and will be frustrating for many commercial landlords. However, there are other options available to enforce unpaid commercial rent, including issuing proceedings and obtaining a county court judgment.

The easing of restrictions will, no doubt, see an increase in winding-petitions being presented by creditors fed up with endless assurances of payment. However, whether these restrictions strike the right balance between protecting business, adversely affected by the Coronavirus pandemic, and creditors’ needs, only time will tell.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.