Partial lifting of the restrictions on winding-up petitions
Restrictions are now lifted for debts not in respect of a business tenancy and for at least £10,000. The previous threshold was £750
Up to the 1 October 2021, a creditor was unable to present a winding-up petition against a company based on a statutory demand that was served between 1 March 2020 and 30 September 2021. Furthermore, it could not petition generally based on a company’s inability to pay its debts unless it had reasonable grounds for believing that Coronavirus had not had a financial effect on the company or that the company’s debt issues would have arisen anyway.
Under new regulations, in force from 1 October 2021 until 31 March 2022, these restrictions are now lifted for debts that are not in respect of a business tenancy, and partially lifted for debts in respect of a business tenancy, and which are (in both cases) for at least £10,000. The previous threshold was £750.
Winding-up petitions based on a debtor’s inability to pay its debts can now be presented provided the conditions, as set out in paragraph 1 of the new Schedule 10 to the Corporate Insolvency and Governance Act 2020, are met.
The conditions are as follows:
- The debt on which the petition is based is not an “excluded debt”. An excluded debt is any sum payable by a tenant under a business tenancy that is unpaid by reason of a financial effect of Coronavirus. This supports the extended moratorium on forfeiture for commercial tenants.
Therefore, for debts not in respect of a business tenancy, a petition can be presented against a debtor regardless of the financial effect of Coronavirus on such debtor. However, a commercial landlord cannot present a petition against a tenant for outstanding rent or other sums payable under a business tenancy unless it can demonstrate that the non-payment is not due to the financial effect of Coronavirus. If arrears of rent or other sums under a business tenancy pre-date the Coronavirus pandemic, then that may be sufficient to demonstrate this. However, in many cases it may be difficult for a landlord to satisfy this test since the tenant will be best placed to provide the court with first-hand evidence as to the financial effect Coronavirus has had on it.
- The debt owed by the company must be both for a liquidated amount, and due for payment.
- The debt, or total of debts owed where the petition is presented by more than one creditor, is more than £10,000.
- The creditor has delivered a written notice (a Schedule 10 Notice) to the debtor seeking proposals for repayment of the debt. The Schedule 10 Notice must contain specified details and include a notice of intention to present a petition in the absence of satisfactory proposals within 21 days. A creditor may apply to court for an order to dispense with this condition.
Statutory demands can now be served concurrently with a Schedule 10 Notice, although this will not generally be necessary.
The winding-up petition needs to include either a statement that no proposals were made by the debtor for payment of the debt, or a summary of the reasons why the debtor’s proposals were not to the creditor’s satisfaction. It appears unlikely that a creditor will be obliged to accept a proposal for payment of less than the amount claimed in full. However, an explanation as to why the proposal is not acceptable must be given.
These provisions are clearly detrimental to creditors who are owed less than £10,000, and they may consider joining with other creditors to amalgamate their debts.
For further information, please contact our insolvency lawyers.