Winding-up petitions are back (subject to new conditions)

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Winding-up petitions are back (subject to new conditions)

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The wait is over. After 18 months of “temporary” restrictions on issuing winding-up petitions imposed by Schedule 10 of the Corporate Governance and Insolvency Act 2020 (“CIGA”), from 1 October 2021 creditors will once again be able to issue a winding-up petition against a corporate debtor.

There is however, a catch. The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (the “New CIGA Regulations”), which come into force on 30 September 2021, contain radical new conditions for a creditor to meet ahead of issuing a petition, and these new conditions will invariably increase pre-petition work and costs. 

To demonstrate just how significant the new conditions are, we only have to remind ourselves of the conditions for issuing winding-up petitions prior to CIGA. Before CIGA, a creditor was able to issue a winding-up petition for any liquidated, overdue debt (including rent arrears), so long as the amount of the debt was £750 or more. Technically (though not always advisable), a creditor could issue a winding-up petition without any notice or demand to the debtor at all.

The New CIGA Regulations will bring about a complete sea-change to the steps a creditor must take ahead of presenting a winding-up petition. The new rules are labelled Conditions A to D and are summarised below.

Condition A

The petition debt must be for a liquidated sum, which has fallen due and is not an 'excluded debt' (as that term is defined in the New CIGA Regulations); specifically, rent arrears under either a business or residential tenancy.

Condition B

The Creditor must serve a “Condition B Notice” on the debtor. This is akin to a statutory demand. Amongst other things, the Condition B Notice will need include the following:
 
  • details of the amount of the debt, how it arose and how it is overdue;
  • a request for the debtor’s proposals for the payment of the debt; and
  • a statement as to the creditor’s intention to present a petition if no acceptable proposal for payment of the debt is made by the debtor within 21 days of the date of service of the “Condition B Notice”.
 
 
Condition C

At least 21 days must have passed since the Condition B Notice was served on the debtor and the debtor must have failed to make an acceptable proposal for the payment of the debt.

Condition D

The debt on which the creditor intends to issue a petition must be or exceed £10,000 (a significant increase from the pre-CIGA £750 threshold). The £10,000 threshold may be comprised of a single debt or a number of debts which, in aggregate, exceed the threshold.

Whilst the provisions in the New CIGA Regulations will undoubtedly be welcomed by creditors, there will invariably be questions over their scope and application. It will be interesting to see how the Courts interpret the meaning of ‘an acceptable proposal’ for the purposes of Condition C. In bankruptcy law, judges can refuse to make a bankruptcy order if, on an objective basis, they consider the debtor to have made a reasonable proposal to pay the debt which is the subject of the bankruptcy petition. Might this principle be adopted and applied in considering a debtor’s response to a winding-up petition?

There is also the question as to how to pursue liquidated debts falling below the new Condition D £10,000 threshold. Our message to creditors would be to continue exploring and utilising other methods of debt recovery which may well provide to be more effective. In our experience, throughout the Covid-19 Pandemic alternative methods of debt collection have proven equally effective and often less expensive than winding-up petitions in recovering stand-alone book debt ledgers.

Contact Us

If would like to learn more about the New CIGA Regulations or our debt collection services then please contact William Angas or Ben Ashworth.

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. PDT Solicitors LLP accepts no responsibility for the content of any third party website to which this webpage refers.

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