On 9 September 2021, the government announced that the restrictions on statutory demands and winding-up petitions under the Corporate Insolvency and Governance Act 2020 (CIGA 2020) that expire on 30 September 2021 would not be extended but would be replaced with more limited restrictions for winding-up petitions presented between 1 October 2021 and 31 March 2022.
So, what are the current restrictions in place until 30 September. CIGA 2020 made it difficult for creditors to successfully petition for the winding up of a debtor company. A winding-up petition cannot be presented:
• on the basis of a statutory demand; or
• on the basis of other evidence of a company’s inability to pay its debts unless the petitioning creditor has reasonable grounds to believe:
• that Covid-19 did not have a financial effect on the company; or
• that the company would have been unable to pay its debts even if Covid-19 had a financial effect on the company.
The announcement has now been confirmed by the publication of the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (SI 2021/1029). The revised Schedule 10 to CIGA 2020 effected by these Regulations (the new Schedule 10) lifts the current restrictions on statutory demands but imposes new requirements for winding-up petitions. The restrictions on petitions where the debt owed is under £10,000 or is for commercial rent remain.
What is changing on 1 October?
It will once again be possible to present a winding-up petition on a basis that a company has failed to satisfy a statutory demand.
The other 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:
• Condition 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;
• Condition 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);
• Condition 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; and
• Condition 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.
The Government has said that it wishes to continue protecting two types of debtors that have been hit particularly hard by Covid-19, small businesses and tenants.
The restriction on founding a winding-up petition on commercial rent arrears (Condition A) is to support the extended moratorium on forfeiture for commercial tenants. Commercial Rent Arrears Recovery will continue until 25 March 2022.
Small businesses will benefit the most from the introduction of the new £10,000 threshold (Condition D). A threshold of £750 currently applies where a creditor wishes to serve a statutory demand. However, there is currently no minimum debt that needs to be owed where the creditor wishing to present a winding-up petition is able to rely upon an unsatisfied judgment debt or can otherwise convince the court that the debtor company is unable to pay its debts as they fall due. On and from 1 October, a minimum of £10,000 will need to be owed in all circumstances before a creditor or group of creditors can present a winding-up petition.
What does this mean for creditors and companies?
Winding-up petitions will once again be a viable tool for many creditors and the renewed threat of winding-up petitions may mean that companies now need to start engaging with their major creditors to agree a restructuring.
Debtor companies in financial distress will likely once again have to react to receiving statutory demands. A statutory demand is useful to creditors as a company is deemed to be unable to pay its debts if a statutory demand is unsatisfied for three weeks. As the petitioning creditor will have to wait the same period of time for its Condition B Notice to become effective there will be no extra delay caused by a statutory demand. The time periods for a statutory demand and the Condition B Notice can run simultaneously.
The requirement to invite a proposal for repayment in the Condition B Notice is designed to encourage engagement between debtor and creditors. It is up to the creditor to decide whether any proposal put forward by the debtor is satisfactory. However, the extent to which a court will scrutinise a creditor’s decision to reject a proposal is still to be seen, so a creditor should be wary of irrationally rejecting a fair and viable proposal.
When used in insolvency proceedings, a Winding up Petition is a very serious instrument. If you want advice on making or tackling a petition, please do not hesitate to contact our specialist team here at Onyx Solicitors on 0121 268 3208 or email us at email@example.com with your query