At the outbreak of COVID-19, the UK Government restricted creditors’ use of statutory demands and winding up petitions (via the Corporate Insolvency and Governance Act 2020 (“CIGA”)) to assist struggling businesses in their handling of the uncertain financial outlook faced at the time. With the general success of the UK’s vaccine rollout and the tentative steps taken back to “normality”, the Government has announced a phasing out of the temporary restrictions from 1 October 2021, intended to last until 31 March 2022.
Prior to 1 October, creditors could not present winding up petitions based on a company’s inability to pay unless they could show that COVID-19 has had no financial effect on the debtor’s ability to pay or that the debtor was unable to pay the debt irrespective of the effect of COVID-19. From 1 October, save for sums owed by commercial tenants, this restriction will be lifted.
The updated legislation will maintain some protection for small businesses by:
- Temporarily increasing the debt threshold for a winding up petition to £10,000 or more; and
- Requiring creditors to deliver a written notice to the debtor containing, amongst other things, a statement that if no proposal to the creditor’s satisfaction is made within 21 days from the date on which the notice was delivered, the creditor intends to present a winding up petition.
Importantly, restrictions on commercial rent petitions will continue until a rent arbitration scheme (to deal with pandemic-related commercial rent debts) is introduced. Accordingly, where commercial rent is unpaid by reason of the financial effects of COVID-19, landlords remain unable to present a winding up petition.
This is the first time the debt threshold for winding up petitions has been raised since the Insolvency Act 1986 came into force. It remains to be seen whether the legislative landscape from 1 April 2022 will return to a pre-pandemic equivalent or not, but for now the changes to the CIGA aim to strike a difficult balance by providing some ongoing protections for smaller businesses owing relatively small sums whilst still allowing businesses to recoup larger debts.