Winding-Up Petition Threshold Increases to £10k
Creditors' restrictions are eased, but protection for businesses remain.
Despite the huge disruption to businesses during the Covid pandemic and the resulting lockdowns, the amount of insolvencies to UK businesses has been remarkably low, though recent figures have shown this to be increasing.
The reason why business insolvencies have been kept low during the pandemic is largely due to the Government’s support packages and restrictions on creditors’ actions. This includes the temporary restrictions on winding-up petitions found in schedule 10 of the Corporate Insolvency and Governance Act 2020 (CIGA). From October 2021 the UK Government will phase out these temporary restrictions.
However, the restrictions will not entirely disappear as the Government will continue to protect viable businesses with new temporary restrictions under new legislation by way of the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (the "CIGA Schedule 10 Regulations").
What are the new rules?
Businesses will once again be able to issue a winding-up petition on the basis that a company has failed to satisfy a statutory demand. Furthermore, with restrictions on winding-up petitions beings eased, a business will no longer need to consider the financial impact of Covid 19 on the debtor.
Instead, from October 2021 until March 2022, in order to present a petition a creditor will need to satisfy the following four conditions:
- Condition A: the debt owed; (i) is for a liquidated amount; (ii) has fallen due for payment; and (iii) is not rent or any other payments (e.g. service charges) that are due under a relevant business tenancy;
- Condition B: the petitioning creditor has delivered a written notice to the company containing, among other things, a statement: (i) that the creditor is seeking the company’s proposal for the payment of the debt; and (ii) that if no satisfactory proposal is made within 21 days of the date of delivery of the notice then the creditor intends to petition for the company’s winding-up (a Condition B Notice);
- Condition C: 21 days have passed since Condition B Notice was delivered and the company has not made a satisfactory proposal for the payment of the debt; and
- Condition D: the debt owed to the petitioning creditor (or a group of petitioning creditors provided they have all met Conditions A to C) is at least £10,000.
Once of the most significant changes will be with regards to Condition D where small businesses will continue to have some added protection to a winding-up petition as the threshold for a statutory demand will increase from £750 to £10,000. Therefore, a minimum of £10,000 will need to be owed in all circumstances before a creditor or group of creditors can present a winding-up petition.
