In April 2020, the UK Government took the extraordinary step of preventing creditor winding up petitions for those companies that had been financially adversely impacted by the outbreak of Covid-19. The move was intended to try and prevent businesses being subject to aggressive debt recovery action that could ultimately lead to them entering into liquidation with the knock-on effect of increased unemployment and which would wholly undermine the financial assistance schemes that the government had introduced to enable businesses to stay afloat.
The measures introduced only allowed winding up petitions to proceed where the Court was satisfied that the debtor company had not been impacted financially by Covid-19 or where the debtor company would have been unable to pay its debts regardless of Covid-19. The new measures introduced a non-attended review hearing at which the Court would consider whether a preliminary hearing should take place to hear evidence on whether or not the winding up petition should be allowed to proceed.
The measures were extended on a number of occasions until their expiry on 30 September 2021. Immediately prior to 30 September 2021, the Government announced that the availability of winding up petitions for creditors would revert back to the pre-Covid-19 position from 1 October 2021 providing the following conditions were met:
A. the debt due by the company to the creditor:
(i) is liquidated (i.e., for a specific amount);
(ii) has fallen due; and
(iii) is not an “excluded debt” (which is defined as rent under a business tenancy which is unpaid by reason of a financial effect of coronavirus);
B. the creditor has delivered written notice seeking the company’s proposals for the payment of the debt;
C. after 21 days, the company has not made a proposal for payment that is to the creditor’s satisfaction; and
D. the amount owed is at least £10,000.
This relaxation also provided for creditors to apply to the court to disapply/vary conditions B and C (but not conditions A or D). The measures also increased the previous and somewhat out of date financial threshold of £750 for presenting a winding up petition that had been in place for a number of decades.
The move has already produced a spike in creditor winding up actions since 1 October as the government’s financial support runs out and companies began to suffer cash flow problems. Whilst it is said that winding up proceedings should not be used as a debt recovery method, invariably they are used in that way and those businesses that do not have the patience to wait for repayment now have the full array of options available to them to recover undisputed debts in excess of £10,000. Businesses that face an action of his type will have to find a way to make repayment otherwise their continued existence will be placed at threat.
For further details contact Phil Sheard at phil.sheard@bexleybeaumont.com or 07780 937 624.