The return of winding-up petitions

Posted: 09/09/2021

The Insolvency Service has today (9 September 2021) announced a phased end (commencing on 1 October 2021) to the temporary insolvency measures which remain as a result of the Corporate Insolvency and Governance Act 2020 (CIGA) and the various extensions to the relevant period (announcement).

The headline measures are as follows:

• a temporary increase from £750 to £10,000 of the outstanding sum which must be owing in order for a company to be deemed insolvent, thus meaning that debts falling into the small claims category (£750 - £10,000) will no longer provide cause for a creditor to present a petition (or threaten to present a petition) for a company to be wound up by the court, unless it meets other criteria (such as the debt being an execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company which is returned unsatisfied);
• a requirement that creditors seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action.

The latter of these measures is likely to be dealt with by creditors serving statutory demands upon their debtors or amending what would previously have been a letter giving seven days’ notice that in the absence of payment a winding up petition would be presented. It has been widely publicised and discussed at length in the insolvency and restructuring sector that there has been an ever-growing mountain of debt which has accumulated during the pandemic, as creditors have been unable to seek the class remedy of petitioning for the court to place debtor companies into compulsory liquidation. This has also meant a significant number of so called ‘zombie companies’ have been able to continue to trade whilst insolvent. We therefore expect to see a considerable volume of winding-up petitions being presented.

A fascinating element of today’s announcement is that whilst CIGA restrictions are being phased out generally, those very same restrictions, in respect of commercial rent only, will remain in place until 31 March 2022, whilst the Government implements a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic. This carve out is stated to align with the extension of the measures contained within section 82(12) of the Coronavirus Act 2020, which the Government announced in June 2021 would be extended to 25 March 2022 (announcement), and which was discussed in a previous article (here). Hopefully this disconnect of dates will be clarified in due course.

The wording which is contained within the (yet to be published) statutory instrument, will no doubt be of great interest to commercial landlords and tenants in particular who will need to ascertain whether this may open a back door to commercial forfeiture for landlords with tenants who owe non-rent debts in excess of £10,000. We will provide further updates as soon as more information is released.

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