New Winding Up Petition Rules

Posted on 1 October 2021

As of today the various COVID-19 related restrictions on winding up petitions and statutory demands contained in the Corporate Insolvency and Governance Act 2020 (CIGA 2020) have for the most part ceased to apply. However, they remain in place in some limited circumstances, and new requirements have been introduced to try to encourage settlement of debts prior to proceedings being brought.

The previous restrictions (which have been in place for the past 18 months) imposed severe limitations on the usual insolvency procedures available to creditors. In particular, it was not possible to issue a winding up petition on the basis of a statutory demand issued during the period of the restrictions. Further, any winding up petition brought during this period was subject to a requirement that the petitioner could show that the debtor's inability to pay its debts was not a result of the Coronavirus pandemic (the "Coronavirus Test"). These restrictions were contained in Schedule 10 of CIGA 2020.

This has now been replaced with a new Schedule 10 under The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (SI 2021/1029). Under the new Schedule 10 the vast majority of the previous restrictions have fallen away entirely. However, some more limited restrictions do remain in relation to petitions presented during the period 1 October 2021 to 31 March 2022. Specifically, winding up petitions cannot be brought during this period in respect of debts:

  • of less than £10,000; or
  • Which:
    • relate to a relevant business tenancy; and
    • are unpaid  due to the financial effects of coronavirus.

These provisions significantly raise the minimum amount of debt on which a winding up petition based on a statutory demand can be founded (from £750 to £10,000) and retain the Coronavirus Test in respect of debts in relation to commercial tenancies.

The new Sch. 10 has also introduced an additional step that creditors will have to complete before commencing any winding up petitions for debts not caught by the remaining restrictions during the period 1 October 2021 to 31 March 2022. Under the new rules, a creditor must give the debtor notice and details of the debt claimed, and allow them a 21 day period from delivery of this notice in which to make a proposal for payment of the debt before any winding up proceedings are commenced. This notice is different from a Statutory Demand, although it appears that both could be served at the same time. Once the 21 day period has expired, if the debtor has not made a proposal for payment of the debt that is to the creditors satisfaction then they will be able to file a winding up petition.

The new rules are significantly less restrictive than those that have been in place for the past eighteen months. However, it is important to note the remaining restrictions, as well as the new requirements that need to satisfied in order to bring a successful winding up petition. If you have any questions or would like to know more, please do contact the authors or your usual contact at Mishcon de Reya.

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