Home Legal & Insurance Businesses warned winding-up petition rules have changed

Businesses warned winding-up petition rules have changed

John Howe

Pudsey law firm John Howe & Co has warned that businesses need to be aware that changes to restrictions on winding-up orders have come into force.

Companies in financial distress due to the Covid pandemic have been protected from creditor action since June 2020 under the auspices of the Corporate and Governance Act 2020.

The ban on a creditor being able to apply for a ‘winding-up’ order if a company could not pay its debts is being relaxed, but now certain new conditions must be met.

These include:

  • The creditor must be owed £10,000 or more before a petition can be brought
  • The creditor must seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding-up action
  • These new conditions, and in particular the £10,000 threshold, will safeguard smaller companies from being pursued by creditors trying to enforce the repayment of relatively small debts

John Howe, partner at John Howe & Co said: “The ban on winding-up petitions was put in place to ensure that viable businesses temporarily affected by Covid restrictions on trading during lockdown were not forced into insolvency unnecessarily.

“As the economy returns to normal trading conditions, the Government feels these restrictions should be eased.

“However, the good news for smaller firms, which are likely to still be feeling the impact of the lockdowns, is that they are being given a little more time to get back on their feet.

“The new conditions will give such businesses more leeway to trade their way back to financial health before creditors can take action to wind them up with the new measures running until March 31 2022.”

In relation to rent and commercial property, businesses should pay contractual rents where they are able to do so, said Mr Howe.

However, the existing restrictions will remain on commercial landlords from presenting winding-up petitions against limited companies to repay commercial rents arrears built-up during the Pandemic. Commercial tenants will continue to be protected from eviction until the end of March 2022.

The Government plans to implement a rent arbitration scheme to deal with commercial rent arrears accrued during the Covid business constraints.

Mr Howe added: “Creditors and companies should be aware of these changes and should take specialist advice if they are owed money or receive a demand for payment.”