Winding up petitions and statutory demands are back!

The amended legislation

Schedule 10 of the Corporate Insolvency & Governance Act 2020, which introduced temporary restrictions on the use of statutory demands, and temporary amendments to the winding up petition process, has been replaced with effect from 1 October 2021 by the imaginatively entitled “The Corporate Insolvency and Governance Act 2020 (Covid-19) (Amendment of Schedule 10) (No 2) Regulations 2021”. (This is actually the second replacement Schedule 10, after the first set of regulations had an incorrect date).

Headline changes

From 1 October 2021:
1. Statutory demands can resume; and
2. The winding up petition process will no longer require creditors to set out how a debtor company has been financially impacted by Covid-19, but the petition process will be amended from its pre-pandemic format.

Amendments to the petition process

The presentation of a winding up petition will only be possible where 4 conditions are met:

(A) The debt must be liquidated, due for payment, and not be an “excluded debt” (see below);

(B) The creditor must have delivered a notice to the company in a format complying with paragraph 1(4) and 1(5) of the new Schedule 10 which requires certain identifying details and a statement that if no proposal is made within the period of 21 days from delivery of the notice, the creditor intends to present a winding up petition;

(C) No proposal satisfactory to the creditor is received by that 21 day deadline; and

(D) The debt is £10,000 or more.

The petition will require a statement that these conditions are met. These amendments will (at least initially) apply from 1 October 2021 to 31 March 2022.

Excluded debts

These are defined as “a debt in respect of rent, or any sum or other payment that a tenant is liable to pay, under a relevant business tenancy”. A relevant business tenancy is one to which Part 2 of the Landlord and Tenant Act 1954 applies, or would apply if the relevant occupier were the tenant. This was briefly covered by our colleagues in our Real Estate team in their article: A quick guide to the coronavirus act and the moratorium on forfeiture for commercial landlords and tenants.

Our view

The increase in the debt value threshold from £750 to £10,000 is unlikely to affect the number of potential petitions given creditors have always had an eye on the proportionality of the costs of the petition process compared with the value of the debt. The requirement for serving a condition B notice will almost certainly go hand in hand with the service of a statutory demand on the basis that as creditors are required to wait 21 days before they can petition, they may as well serve a statutory demand too and meet an arguably easier test for insolvency. Landlords of business tenancies will remain unable to access the full range of recovery options – the impact on that class of creditor is discussed in Katie Farmer’s recent article: The Government’s intentions for pandemic rent debt. An update for commercial landlords, tenants and their advisors.

For further information on this update, please contact a member of our Restructuring & Insolvency Team or visit our dedicated CIGA & beyond hub.

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