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Government extends restrictions on winding up petitions but ends protection for directors against wrongful trading liability

View profile for Julie Hunter
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As we reported in earlier blogs, part of the package of measures implemented by the government in efforts to protect companies from creditor enforcement, was to impose a prohibition on the presentation of winding up petitions and the making of winding up orders.

The ban on winding up petitions has been further extended to 30 September 2021 meaning that no creditor can present a petition against a debtor company before 1 October 2021.

Note that a creditor may still serve a statutory demand on a debtor, under the Insolvency Act 1986, but as no petition can be presented to the court at the moment or before 1 October 2021, there is little point in any creditor serving such a demand before early September, since 21 days must elapse between service of the demand and the presentation of a winding up petition.

However, the exception to this rule, where a petition can proceed if the creditor can demonstrate that the reason for non-payment of a debt is not Covid-19 related, remains in place. Where a creditor has evidence to demonstrate that a debt remains unpaid and that coronavirus has not had a financial impact on the debtor, they may present a winding up petition, although evidence proving the exemption applies must be filed at court.

Statistical evidence indicates that very few creditors have made use of this exception, primarily due to the costs and evidential burden of establishing a global pandemic, resulting in national lockdowns throughout the UK, USA and large parts of northern Europe, has not adversely affected a debtors business to any extent. There have been some examples of courts allowing petitions to proceed, and so the burden is not insurmountable, but given the current prohibition will expire on 31 September 2021, and a further extension for any significant period of time seems unlikely, creditors may feel better advised to wait until October.

Not all measures have been further extended. Directors should note that the suspension of personal liability for wrongful trading expired on 30 June 2021. From that date, director’s will be held personally liable for losses to creditors of the company arising from wrongful trading – if they continue to trade knowing the company is insolvent.

For advice or assistance on commercial or insolvency issues call our commercial solicitors on 0161 696 6170 or complete our online enquiry form and a member of the team will contact you directly.