One of the risks of being a director of an insolvent company which goes into liquidation or administration is that your conduct will be reviewed and,…
One of the many protections for businesses during the pandemic has been a ban on winding up action by creditors unless it can be shown that the inability to pay is not Covid related.
The government is looking to return to more normal times. It has, however, acted in an attempt to stem a possible flood of insolvencies as Covid restrictions on creditor enforcement come to an end.
On 9 September, new regulations were laid before Parliament which are due to come into force on 1 October 2021, just as the present ban on winding up orders ends. These measures include:
- The requirement to consider the effects of Covid is no longer necessary
- The minimum debt required for a creditor to issue a petition is being increased from £750 to £10,000, which means only large creditors can use the process
- Landlords are once again subject to the additional hurdle of demonstrating that the rent arrears are not Covid related, until 31 March 2022
The new and surprising further provision is that:
“Creditors must seek proposals for the repayment of the debt, giving 21 days to respond before they can proceed with a winding up petition.”
The detailed regulations are not yet available, but it is likely that all statutory demands will be accompanied by a 21-day notice to submit payment proposals. What is not clear is the extent, if any, to which the Court will consider the reasonableness of any such proposals, or whether it will simply be up to the creditor to decide, possibly “unreasonably”.
It will be important to see how HMRC, which has historically issued a lot of petitions, will approach the intentions behind the new regulations, and we look forward to some guidance being issued by them.
Debtors receiving a demand or notice will need carefully to consider what can be paid to the creditor. An important element of any proposal should be an estimated outcome statement of the result of liquidation happening, to put the proposal in context. This is where some input from an Insolvency Practitioner may prove valuable.
If you – or any of your clients – are facing creditor pressure and may benefit from a review, please contact our Business Recovery team.