Changes to the Issuing of Winding-up Petitions

Issuing of winding-up petitions

Following a temporary constraint on the issuing of winding up petitions by virtue of Schedule 10 of the Corporate Governance and Insolvency Act 2020 (“the CIGA”), these rules are now being amended and replaced (albeit again temporarily), with more refined restrictions which are set to be in force until 31st March. Under the amendment of Schedule 10 (“the 2021 Regulations”), the new rules contain various conditions that creditors will have to meet to bring a petition against a corporate debtor.

Prior to the CIGA, creditors could issue a winding-up petition against a corporate debtor, provided the debt was worth £750 or more. The 2021 Regulations now provide that any creditor looking to bring a winding-up petition must satisfy four main conditions (A-D), which are summarised and set out below.

Condition A

The debt which the petition regards cannot be an ‘excluded debt’ under the 2021 Regulations, which are defined as rent of any payment under a business tenancy that is not paid due to the impact of Covid-19. It must, however, be for a liquidated amount and has fallen due.

Condition B

A ‘Condition B notice’ must be served on the debtor by the petitioner ahead of bringing the petition. There are various formalities that must be adhered to in this notice, the most pertinent being that the petitioner includes:

• A request for the debtor’s proposals for the payment of the debt;
• Details concerning the amount of the debt, how it became a debt and how long it is overdue; and
• A statement to the extent that the petitioner intends to bring a winding-up petition if the debt has not been repaid within 21 days of the date the notice was delivered.

Condition C

Twenty-one days must have elapsed since the date on which the notice was served, and the debtor must have failed to make an adequate proposal for the payment of the debt.

Condition D

The debt owed to either a single petitioner or more than one petitioner must be for a combined total of at least £10,000.

Provided this is the case, any petition issued must confirm that the requirements contained in paragraph 1, schedule 10 of the CIGA have been fulfilled and that no satisfactory proposal has been made. Should a proposal have been made that is not deemed acceptable by the petitioner(s), then the petitioner(s) must provide their reasoning as to why the proposal is not appropriate.

Bringing an application to disapply conditions

One point of note is that a petitioner can bring an application to disapply the Conditions in B & C, or at least to shorten the time period required by Condition C.

The revision to the rules has the effect of considerably increasing the petition threshold to £10,000 and will most certainly be welcomed by small and medium-sized enterprises alike as they attempt to recover from the effects the pandemic has had and continues to have. Despite this, there is nothing to prevent a number of petitioners joining forces to bring a petition and reach the threshold required by Condition D.

It is also important to note that the courts do have discretion in considering whether a proposal made by a debtor in respect of an unpaid debt is, or should be, reasonably satisfactory to the petitioner. More will become understood about the scope of the new rules and, in particular, how the courts will choose to interpret what is an acceptable proposal as more petitions are issued.

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