How to deal with winding-up petitions following the relaxation of temporary COVID insolvency measures

The UK government has announced the relaxation of the temporary rules which were put in place in order to restrict the use of winding-up petitions during the Pandemic. The changes which come into effect from 1 October 2021 will remain in force until 31 March 2022.

We are leading experts specialising in insolvency proceedings. Our experienced City of London solicitors and barristers regularly assist companies facing a winding up petition; individuals served a statutory demand; or creditors owed money and considering issuing a winding up petition.

What is a winding-up petition?

A winding-up petition (WUP) is a legal action taken by a creditor or creditors against a company that owes them money.  If a company owes an outstanding balance of £750 or more, the creditor(s) can make an application to the court to issue a petition which will stipulate a hearing date and must be served at the registered office address of the debtor company (Section 123(1)(a), Insolvency Act 1986).  The court will grant a winding-up order if the petition is approved.  This will then allow the creditor(s) to appoint an insolvency practitioner as liquidator to collect the company’s assets and distribute them among the creditors in order to repay the debt.

Restrictions on the use of winding-up petitions

A few weeks after the announcement of lockdown in March 2020, the UK government announced several restrictions as part of the Corporate Insolvency and Governance Act 2020 to restrict the use of statutory demands and limit the use of winding up petitions in corporate insolvency. Hence, those new changes prevented a creditor from presenting a winding-up petition to the court unless it met the criteria set out below:

(1) Covid-19 did not have any financial effect on the debtor company, or

(2) The debtor company would still be insolvent even if the pandemic had a financial effect on it.

What are the insolvency changes from 1 October 2021?

The changes that apply as from 1 October 2021 will allow creditors to pursue a winding up petition in relation to unpaid debts, but they have to meet certain criteria. As from the 1^st of October 2021, a creditor will be able to:

(1) Present a winding up petition against a debtor company only in respect of a debt or debts of £10,000 or more.

(2) Serve a statutory demand on a debtor in order to demonstrate that company’s insolvency due to its inability to pay its debts.

On the other hand, a creditor will still not be able to present a winding-up petition:

• unless a notice under Schedule 10 of CIGA 20 has first been served on the debtor company, requesting that they make satisfactory proposals for payment of the debt within 21 days (although a creditor can seek an order from the court to avoid having to do this in cases of urgency); or
• if the debt is less than £10,000; or
• if the debt relates to unpaid commercial rent which is due as a result of the financial effect coronavirus has had on that debtor company. This was not unexpected, given that the Government had previously announced that the restrictions on landlords being able to forfeit a commercial lease for non-payment of rent would be extended until March 2022.

What should a company do if faced with a winding-up petition?

It is likely that the relaxing of these debt enforcement restrictions will now signal a new wave of corporate insolvencies that many have predicted.

The consequences of a winding-up petition being presented are very serious:

1. If it is advertised, the company’s bank will freeze its account, making it very difficult to trade.
2. It will adversely affect the company’s reputation.
3. Payments made by the company after the petition has been presented may be set aside by the court at a later date.

A petition will adversely affect a company’s credit rating and likely amount to a breach of its covenants with the company’s own bankers.

A company faced with the prospect of a petition needs to act quickly should it receive either a threat of a petition or a notice under Schedule 10 and should consider the following:

• Seeking specialist legal advice at an early stage. If the debt claimed is either disputed or the company has a cross-claim against the petitioner, the company may need to obtain an injunction to either restrain the presentation of a petition or prevent it from being advertised.
• If the debt is owed, an attempt can be made to use either the 21-day period provided by the Schedule 10 notice, or an agreed extension of that period to agree a settlement.
• Directors have a duty to act in the best interest of creditors when faced with the insolvency of their company. Failure to do so can lead to potential personal liability for directors, including for potential breach of directors duties, directors’ disqualification and wrongful trading claims.
• Therefore, if the company is unable to pay its debts, its directors should seek prompt advice from an insolvency specialist. It is possible that alternative options to compulsory liquidation, such as a Company Voluntary Arrangement (CVA) or Administration might be a better alternative which might save the business and/or achieve a better outcome for creditors as a whole.

A company is considered to be insolvent if the value of its liabilities exceeds its assets or it cannot pay its debts as they fall due. The fact that one or both of these factors apply to a company does not necessarily mean that it needs to close or cease trading. However, quite often seeking specialist insolvency advice at an early stage can either allow the company to properly manage the situation or allow for a strategy to be implemented that might save the business. The failure to do so is often a key reason why many companies fail.

We represent you at Winding up Petition Hearings

Although we are based in the legal heart of London, operating as the only law firm in the historic Middle Temple Chambers, we provide comprehensive nationwide coverage to represent you at any winding-up petition hearing.  Our team of solicitors and barristers will prepare grounds of opposition and a witness statement for you.

We will represent you at the winding-up petition hearing and will provide our own barristers or external local counsel to any hearing across the country.

Not based in London? We provide nationwide representation

We will represent you no matter where you are based in England or Wales.

If you contact us through our contact form, by email or by phone, one of our winding-up petition team members will contact you by phone to discuss your matter and assess whether we can assist you.

We can then arrange a fixed fee conference with senior members of our winding-up petition team.  This meeting will take place either in person, via our video / telephone conference facilities, depending on your preference.  Therefore, no matter where you are based in England or Wales we can represent you.

Instruct Specialist Insolvency Lawyers

We provide a fixed fee initial case review with a solicitor and barrister. We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inn of Court adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues.  Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending winding-up petitions vigorously at the Royal Courts of Justice (Rolls Building), the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.