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Government brings in new restrictions on winding up petitions

View profile for Julie Hunter
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As the previous restrictions preventing any creditor from presenting a winding up petition to the court expired on 30 September 2021, new legislation has now been put in place, in a further effort to reduce the number of companies being wound up by the court.

The latest restrictions apply from 1 October 2021 until 31 March 2022 and are aimed at preventing the insolvency of companies which owe a creditor less than £10,000.

As of 1 October 2021, a winding up petition may only be presented against a limited company if all four of the conditions listed below have been met.

Firstly, that the debt on which the petition is based is for £10,000 or more. A petition cannot be presented at all if this condition is not met.

Note that whilst an individual creditor owed less than £10,000 cannot present a petition alone, there if nothing to prevent two or more creditors uniting to present a joint petition if the combined sum owed to them amounts to £10,000 or more.

Secondly, that the debt has fallen due for payment and is not a debt arising from non-payment of commercial rent. This means that a petition cannot be presented for sums which would be due and payable in the future. The debt must be overdue.

Thirdly, a new requirement has been introduced that the creditor cannot present a winding up petition unless it has first made a written and formal request to the debtor company for its proposals for the payment of the debt. The debtor must be allowed 21 days, after that request is delivered to the creditor, to put forward its proposals for payment.

This request must contain specific information in order to meet this condition, including the amount of the debt, the way in which it arose and a statement that the creditor is seeking proposals for payment and that if no proposal is made to the creditor’s satisfaction, a petition will be presented.

The fourth condition is that if no proposals at all are made or, if the proposals put forward are not satisfactory to the creditor, they may be rejected and then a petition can then be presented.

What is considered ‘satisfactory’ is not defined and no guidelines have been given. We consider this would be within the discretion of the creditor, but is open to argument as to whether or not the proposals were reasonable and should have been accepted.

The creditor will need to explain to the court why the proposals were rejected, when presenting the petition, so a genuine explanation will have to be given.

To avoid these arguments at the hearing of the petition, we would advise creditors to accept any proposals for payments that would result in payment over a reasonably short period of time and where the debtor can demonstrate that it does have the ability to pay.

Any proposal which the debtor is unlikely to be able to honour, or which would take a long time to clear the debt, could safely be regarded as unsatisfactory, enabling the creditor to reject the proposal and present a petition.

For debtor companies we would suggest that, where possible, to satisfy creditors, proposals should be made reducing the debt to below the £10,000 threshold within a short space of time coupled with a realistic repayment offer.

Finally, in urgent or exceptional cases the court can waive the requirement to issue the formal request for a repayment proposal. Again the particular circumstances in which the court would do so are not specified. This exemption is only likely to apply where the debtor has defaulted on previous promises to pay the debt or where there is a real risk that the debtor company is putting assets beyond the reach of its creditors, requiring urgent intervention by the courts.

For advice on what should be included in the formal request for payment, how best to recover commercial debts and whether there are good reasons to ask the court to waive the need for the request for payment proposals, contact Stephensons’ insolvency team on 0161 696 6170.