Recent developments

COVID-19 saw the government introducing restrictions on a creditor’s ability to commence winding-up petitions (a “Petition”) – a monumental change in insolvency law for a monumental moment in time.

On 1 October 2021, those restrictions were lifted as industries started to strengthen their green shoots of recovery. Alternative (temporary) limitations to Petitions are now in place. Petitions cannot be made for:

Businesses owing commercial rent; and
Debts for less than £10,000.

The Previous Restrictions

These prevented a Petition being presented:

On the basis of a statutory demand; or
On the basis of other evidence of a company’s inability to pay its debts, unless the petitioning creditor has reasonable grounds to believe:
That COVID-19 did not have any financial effect on the company; or
That the company would have been unable to pay its debts even if COVID-19 did have a financial impact on the company.

In the main, that put an end to insolvency actions.

What’s Changing?

The restriction on the ability for a creditor to bring a Petition by reason of a debtor’s failure to satisfy a statutory demand has been removed.
It is no longer necessary to consider the financial impact of COVID-19.

Until 31 March 2022 (currently, but watch this space), the conditions that need to be satisfied to commence a winding-up petition are:

The debt is for a liquidated amount of £10,000 or more;
The debt is not an ‘excluded debt’ – rent or other payments that form part of a business tenancy; and
A written notice (a “Notice”) is sent to the debtor which, amongst other things, seeks the debtor’s proposal to settle the debt and states that if a satisfactory proposal isn’t made within 21 days of the Notice, the creditor intends to petition for the company’s winding-up.

If these conditions are satisfied and the debtor fails to make a satisfactory proposal to satisfy the debt, the creditor is free to make a Petition after the 21 days expire.

Our Thoughts at Carbon Law Partners

It is good to see some protections afforded to debtors with ongoing recognition that the pandemic has impacted all businesses in some way. We see the new restrictions as a positive action to move from the pandemic.
The greater protection to tenancy related debts will be a sigh of relief to all but landlords. However, anything different would have been off-kilter to the continuing legislative protections for tenancies.
The new legislation and continued protection afforded will be invaluable to the leisure and tourism industries, who have arguably been hit hardest by the impact of the pandemic.
The cap prevents spurious debtors from hiding behind the pandemic any longer.
The requirement to serve a Notice provides significant protection to debtors. Creditors rarely serve a statutory demand, preferring to rely on section 123(1)(e) of the Insolvency Act 1986 by proving (to the satisfaction of the court) that a debtor cannot pay its debts.
The introduction of the Notice replicates the time afford by a statutory demand but goes further to provide the debtor with the opportunity to make a proposal to settle the debt, rather than requiring it to pay it in full immediately.

Along with the progress being made in the ongoing battle against the pandemic, the new restrictions will remain in place at the end of March 2022. The position from 1 April 2022 will undoubtedly be made clear in the upcoming months.

At Carbon Law Partners, we have significant experience in bringing and defending debt and insolvency claims. If you require more information on the current changes or in relation to commercial disputes in general, please get in touch with David Martin.

Produced by: David Martin (Partner) and Al Hussain (Solicitor)