For the past 18 months, in order to protect struggling businesses during the pandemic, a creditor has been unable to issue a winding up petition against a debtor unless it can show that coronavirus has not had a financial impact on the debtor’s business or that the debtor would have been unable to pay the debt notwithstanding the pandemic. It is a tough test to pass and due to the potential adverse cost risks, creditors have been prevented from issuing winding up petitions in the main.
From 1 October 2021, the restrictions on issuing winding up petitions will be lifted but with certain conditions.
Before issuing a winding up petition, a creditor must write to the debtor setting out details of the debt and asking for its proposals for the payment of the debt within 21 days. A creditor should not issue a winding up petition until the 21 days has expired. The legislation suggests that it is for the creditor to decide whether the proposals are satisfactory and, therefore, it appears that if the creditor does not consider the proposals satisfactory (even if the proposals are reasonable), it can still proceed with a winding up petition.
Previously, in order to issue a winding up petition, the outstanding debt needed to be in excess of £750 but this limit has now increased to £10,000. Accordingly, a winding up petition cannot be issued unless the debt due to the creditor is £10,000 or more. However, a number of creditors can jointly apply for a winding up petition provided that the total amount due (to the various creditors) exceeds £10,000.
Finally, the restrictions on the issue of winding up petitions remain in place for commercial landlords for unpaid rent arrears (or any other sum that a tenant is liable to pay) due under a relevant business tenancy agreement, until 31 March 2022. A landlord can only issue a winding up petition for unpaid rent if it can show that coronavirus has not had a financial impact on the tenant’s business or that the tenant would have been unable to pay the amount due notwithstanding the pandemic. A landlord can still take action against an individual under a personal guarantee.
If you are thinking of issuing a winding up petition against a debtor or you have been served with a winding up petition and require advice, please contact Ruth Ball on 01332 225384.