Winding up petitions: what are the restrictions?
The Corporate Insolvency and Governance Act 2020 (Amendment of Schedule 10) Regulations 2021 (the amendment) came into force on 1 October 2021 and amended Schedule 10 of the Corporate Insolvency and Governance Act 2020 (CIGA 2020).
When CIGA 2020 came into force, it imposed restrictions on, among other things, presenting winding-up petitions.
As a brief reminder, the restrictions imposed were that a winding up petition could not be presented either on the basis of a statutory demand or on the basis that a company could not pay its debts, unless it could show reasonable grounds to believe that Covid-19 had no financial effect on the company or, if it did, that the company would not have been able to meet its debts anyway.
The amendment removes the restriction on presenting a winding up petition due to a statutory demand. However, it has not returned winding up petitions to the position they were pre-Covid-19.
Instead, four conditions must now be met for a creditor to present a winding up petition. These are referred to as Conditions A-D.
Condition A sets out the circumstances that must occur for a winding up petition to be presented. It sets out that the debt owed:
• Must be for a liquidated amount
• Has fallen due
• Is not rent or any other payment due under a commercial tenancy.
Condition B sets out that a written notice seeking the debtor’s proposals for paying the debt must be delivered to the debtor. The key provisions here are that the Condition B Notice must:
• State the creditor is seeking the debtor’s proposal for payment
• State that if no satisfactory proposal is made within 21 days of delivery of the Condition B Notice, the creditor intends to petition for the company to be wound up.
Condition C sets out the timing of the new procedure. 21 days must have passed since the Condition B Notice was delivered and no satisfactory proposals for payment of the debt must have been made in this time.
Condition D sets out the threshold of the debt. The petitioning creditor or group of creditors must be owed £10,000.
The amendment removes some of the protections given to businesses by CIGA 2020 whilst creating new protections.
The government has said that the intention behind the amendment is to protect small businesses and tenants. We can see this rationale in Condition A – that the debt owed must not be rent or any other payment due under a commercial tenancy.
Further, the increase in the debt threshold from £750 to £10,000 when serving a statutory demand set out in Condition D indicates an intention to protect small businesses.
Winding up petitions and moratoriums
One of the more interesting effects of the amendment is the interaction of the new Condition B Notice with Part A1 moratoriums.
It is well established that a winding up petition cannot be presented whilst a company has the benefit of a moratorium. However, what happens when you want to serve a Condition B Notice whilst a moratorium is in place?
A Condition B Notice is not a winding up petition, but the amendment means that these notices are now classed as the first step in winding up a petition.
Section A21(1)(d) of Part A1 of the Insolvency Act sets out that “no legal process may be instituted, carried out or continued against the company” whilst a moratorium is in place. It therefore appears that, as a Condition B Notice is now the preliminary step in presenting a winding up petition, it cannot be served whilst a moratorium is in place.
The effect of this is that the process of winding a company up following a moratorium is extended. Once the moratorium ends, a winding up petition cannot be presented until 21 days after the Condition B Notice is delivered.