Winding Up Petitions – lifting of restrictions but with a twist

10th September 2021 Restructuring & Insolvency

Yesterday the Government confirmed that the restrictions on the presentation of winding up petitions would be lifted on 30 September 2021, as planned.

However, designed to assist small companies in their recovery from the pandemic, the new regulations coming into force on 29 September 2021 have been drafted with the aim of protecting businesses from creditors demanding repayment of relatively small debts. The key difference is the temporary raising of the threshold for a winding up petition to £10,000, a drastic increase from £750.

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (the “New Regulations”) require (amongst other conditions) a prospective petitioning creditor to seek proposals for payment from a debtor business, giving them 21 days for a response before a winding up petition can be presented.

These measures will remain in force until 31 March 2022.

The lifting of restrictions will allow the Official Receiver and any subsequently appointed liquidators to investigate potential claims against directors and others and to realise assets for the benefit of creditors, something which has been held up significantly by the restrictions, in particular as regards void dispositions under s.127 of the Insolvency Act 1986.

This would also help facilitate claims connected to CBILS, leaving directors who may not have used funding as intended open to possible claims against them personally. Directors should consider how CBILS monies have been deployed and seek early advice.

Creditors will need to consider their own position (e.g. contractual, security, strategic and their own cash flows) carefully given the dramatic increase in the threshold, designed to assist small companies who would not usually be expected to have debts of £10,000 or more. Creditors might, in certain extreme circumstances, wish to consider ‘clubbing together’ with other creditors to take an assignment of claims in order for at least one of them to reach the threshold or consider presenting a petition together with another creditor (as per paragraph 8(b) of the New Regulations).

The bankruptcy threshold (i.e. for individual debtors) was increased on 1 October 2015 to £5,000 (previously also £750) so perhaps this will prove to be the first step towards fixing the same amount in respect of company winding up petitions. 

In any event, the winding up courts look set to be busy once again come this autumn.

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Alejandro Worthington is a Partner located in Londonin our Restructuring & Insolvency department

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