Extension to restrictions on issuing winding up petitions

Issy Bainbridge, a trainee solicitor at Holmes & Hills, discusses the Government’s extension to the ban on issuing winding up petitions.

Due to the Covid-19 pandemic, the Government has made various changes to legislation under the Corporate Insolvency and Governance Act 2020 (the CIGA) to support businesses during the pandemic. This has caused difficulties for creditors pursuing company debtors for unpaid debt.

The extension of the restrictions for issuing winding up petitions made by the Government in December 2020 (which was due to come to end on 31 March 2021) was supposed to be the final extension. However, due to the continued uncertainty surrounding Covid-19, the Government has extended the restrictions again, under the CIGA (Coronavirus) (Extension of the Relevant Period) Regulations 2021, to last until 30 June 2021.

The temporary suspension of wrongful trading liability (which was due to end on 30 April 2021) will also be extended to 30 June 2021. This follows the extension of the bans on business evictions and landlords using Commercial Rent Arrears Recovery announced on 10 March 2021.

What are the restrictions on issuing winding up petitions?

No winding up petitions can be made based on a statutory demand which was served after 27 April 2020, and no petitions can be issued for debts that became due after 1 March 2020, unless:

1. The creditor can demonstrate that the company debtor was unable to pay its debts as they fell due (and were therefore insolvent) before the Covid-19 pandemic; or
2. Payment of the debt was due on or before 29 February 2020; or
3. The creditor can pass the “coronavirus test” by showing that either:
   a) Covid-19 has not had a financial effect on the company; or
   b) The company has been affected by Covid-19 but would have been unable to pay its debts anyway.

Other options to recover your debt besides issuing a winding up petition

Proving the “coronavirus test” can be difficult for a creditor trying to recover a debt. When the restrictions on issuing winding up petitions come to an end on 30^th June 2021, there will be a huge surge of petitions being made which will cause further delays for creditors.

There are a variety of alternative methods for seeking to recover a debt, including but not limited to issuing a money claim in the High Court or County Court. Deciding which option will be best for you (which may still include insolvency proceedings) will require an analysis of the facts of your particular circumstances. Holmes & Hills Solicitors can advise on all the available options and assist you (as the creditor) with deciding on the most appropriate strategy and plan for recovering the debt owed to you.

Are your terms of business protecting you?

Your terms of business should offer your business protection in a situation where monies become overdue, by providing you with the recourse to recover the debt, plus additional amounts, as well as by setting out clear requirements for payment, amongst other matters. Where a robust set of terms and conditions are not in place, your business may be vulnerable to being unable to recover debts owed . If you are concerned about the extent to which your terms of business protect your position, contact the Litigation Department at Holmes & Hills Solicitors who will be able to undertake a review.