Return of The Wind Up – The Phase Out of Temporary Restrictions

The temporary restrictions on the presentation of winding up petitions, which were put in place to protect businesses from insolvency during the pandemic, are to be lifted and from 1 October 2021.  However, they will be replaced by new ‘tapering measures’. These mean that creditors will be able to seek to wind up debtors who owe them money, subject to new conditions. These conditions are designed to help business get back to normal without facing a cliff edge following withdrawal of the outgoing restrictions – they have been drafted to protect companies from aggressive creditor enforcement as the economy and businesses try and get back to something like normal.

The key measure is that a debtor has to owe debts in excess of £10,000 (or a combined total of £10,000), which is a significant jump from the £750 threshold. In addition, an application to wind up a company, on the basis that it is unable to pay its debts, cannot be made unless certain conditions are satisfied, which include written notice being provided by the creditor seeking the debtor’s proposals for payment of the debt within 21 days.

There is a notable exception in relation to commercial rent or any sums payable under a relevant business tenancy. Generally speaking, UK Landlords will be prevented from being able to enforce, by way of winding up, any rent arrears which have built up and have not been paid due to/during the pandemic until at least 31 March 2022. The courts have been applying a low threshold when determining whether a debtor is able to prove that COVID has had a financial impact on it.

Whilst the news that creditors can now proceed with winding-up petitions will be welcome in some quarters, creditors need to ensure that (provided the debt is not an excluded one) the prescribed information is provided to debtors and that any proposals they make are carefully considered. Failure to do so could result in a winding up order being refused, and the creditor being found liable for the costs of the petition. Creditors should seek advice in order to navigate the measures and limit any costs connected with any recovery action.