As part of the gradual return to normality, with effect from 30 September creditors regained the right to present petitions to wind up companies for debts accruing during the pandemic. But as Melissa George, partner in Thrings’ Restructuring and Insolvency team, explains, there are still restrictions, but not as many.
What were the restrictions during the pandemic?
Between 1 March 2020 and 30 September 2021, a creditor was barred from presenting a petition to wind up a company unless it had reasonable grounds for believing the coronavirus had not had a financial effect on the debtor, or the debtor would have been unable to pay its debts even if the coronavirus had not had a financial effect on it.
The creditor equally could not rely upon a statutory demand.
What is the current position?
As of 1 October, the Corporate Insolvency and Governance Act (coronavirus) (Amendment of Schedule 10) Regulations 2021 allow a creditor to once again rely upon a statutory demand, and to issue a petition against a company without having to consider the impact of coronavirus on the company debtor.
This right is subject to all four of the following conditions which are imposed until 31 March 2022:
- Condition A: the debt is
- (i) for a liquidated amount which is due to be paid;
- (ii) where that debt is not for rent or sums due under a business tenancy.
- Condition B: the creditor has given written notice to the debtor containing prescribed information and given the debtor 21 days in which to present proposals to settle the debt; failing which a petition will be presented to the court;
- Condition C: the debtor has failed to make proposals within 21 days; and
- Condition D: the debt(s) forming the basis of the petition must be £10,000 or more. Two or more creditors may petition together to meet that threshold.
Condition A is intended to protect corporate tenants from enforcement action by landlords whilst the government introduces new legislation around the proposed arbitration scheme. There remains an expectation that landlords and tenants will reach an accommodation.
The regulations permit a creditor to apply to shorten the 21-day proposal period, but do not set out the grounds for doing so. The court will undoubtedly want to be satisfied of the need for urgency, or perhaps a risk to assets. It is unclear whether permission will be granted where a creditor has issued written requests for proposals before 1 October which are not compliant with content prescribed. The simplest and most cost-effective route in those circumstances may simply be to issue a new, compliant notice.
Interestingly, before 1 October creditors could present petitions regardless of the sums due where they could prove to the satisfaction of the court that the debtor was insolvent (as opposed to where they rely upon a statutory demand). The drafting of the regulations appears to require all petitions presented by creditors to be subject to both the requirement to make a 21-day demand and that the debt exceeds that £10,000 threshold. It also requires the debts to be “liquidated” (a debt where the amount is already quantified).
LLPs and partnerships
The same provisions apply to creditors petitions against LLPs and partnerships (as they are deemed to be companies in a winding up). They do not apply to individuals or partners of an incorporated partnership.
What now for creditors and debtors?
The government remains keen for businesses to work through their difficulties collaboratively. That will, of course, not always be possible.
Creditors should take care in presenting the petitions to ensure the petition meets the conditions, and the petition itself contains the new content prescribed in the regulations, as procedural defects could lead to the petition being dismissed. Courts are also keen to ensure petitions are not inappropriately used as a debt collection tool.
It is vital, with the return of this arrow to the quiver, that companies facing cashflow difficulties talk to their creditors and obtain professional advice on the options available and duties and responsibilities of their directors to their creditors. If you would like to discuss any aspect of this article, please get in touch with Melissa George or Mark Cullingford in Thrings’ Restructuring and Insolvency team.
