It will come as welcome news to creditors that the ban on presenting winding up petitions will end on 30 September 2021.
The ban, which was introduced by the Corporate Insolvency and Governance Act 2020, prevents creditors from presenting a winding up petition against a company based on its inability to pay its debts unless the petitioner can show that they have reasonable grounds for believing COVID-19 has not had a financial effect on the company or that the debt issues would have arisen anyway.
The ban applies to all winding up petitions presented between 1 March and 30 September 2021 (or to winding up petitions based on a statutory demand served within that timeframe).
In Re A Company [2020] EHC 1551, Judge Barber established that the threshold for proving that the coronavirus pandemic has had a financial effect on the company is low. A debtor company simply has to show that coronavirus has had a financial effect on it; the pandemic does not need to be the (or even a) cause of the company’s insolvency for the petition to be dismissed. Given this low threshold, many creditors have decided not to take the risk of presenting winding up petitions since the Act was introduced last year.
Fortunately for creditors, they will be able to serve statutory demands and present winding up petitions from 1 October 2020, as the Government has confirmed that it will not be extending the restrictions currently in force past 30 September 2021.
There are a few temporary provisions that creditors need to be aware of, however:
- The current debt threshold for presenting a petition will rise from £750 to £10,000; and
- Creditors will be required to give debtors 21 days to put forward any payment proposals before they can proceed with winding up action.
These temporary provisions (which will remain in force until 31 March 2022) appear to strike a fair balance between continuing to protect companies and enabling creditors to recover debts which could have arisen up to 19 months before presentation of the petition.
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