Joanne Gillies: Winding up petitions – new law gives small firms breathing space
The UK Government has introduced legislation designed to support small businesses following the end of restrictions on winding up petitions on 30 September, writes Joanne Gillies, partner at Pinsent Masons.
The Corporate Insolvency and Governance Act 2020 (CIGA) introduced in June 2020 restricted creditors from serving statutory demands and presenting winding up petitions for debts related to coronavirus.
The government has now introduced the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021, with the aim of giving smaller companies more time to trade before creditors can take action to wind them up.
Although there will no longer be restrictions on presenting statutory demands, from 1 October until 31 March 2022, the threshold for presenting a winding up petition will be increased from £750 to £10,000. It will be possible for more than one creditor with a total aggregate debt of £10,000 or more to jointly present a winding up petition.
The extra time to trade is limited to a 21-day period. After the statutory demand, creditors must write to a company providing 21 days for repayment proposals to be made before they can present a winding up petition.
A creditor can apply to court for permission not to write to a company or to give a company less than 21 days to put forward repayment proposals. The winding up petition must contain a statement confirming that the regulations have been complied with.
However, the regulations do not amend the sections of the Insolvency Act 1986 that make transferring any company property void between the date of the winding up petition is lodged with the court, and the date it is granted. This means that from 1 October, banks will be likely to consider freezing company bank accounts on learning of a winding up position.
The provisions suspending liability for wrongful trading expired on 30 June, giving creditors comfort from the fact that directors should only continue to trade providing that they are not worsening the financial position of the company. It will be interesting to see how the courts deal with the requirement that creditors must give debtors a further 21 days for repayment proposals before they can present a winding up petition.
Particularly if there is evidence of assets being dissipated, a creditor may not be in a position to wait 21 days for the debtor’s proposals, and a provisional liquidator appointment will be required immediately. Helpfully, judges have discretion to waive this condition, but it remains to be seen what criteria they apply when deciding whether to do so.
The regulations also affect commercial landlords, who have been effectively stripped of powers to take action if rent has not been paid through the pandemic – winding up petitions are still prohibited in respect of debts arising from commercial leases where coronavirus has caused financial difficulty – and the landlord still has to provide 14 weeks’ notice if seeking to terminate the lease. These restrictions remain in place until 31 March 2022.