Temporary new rules make it easier to apply to wind up limited companies that owe you money

Small businesses will welcome temporary, new rules from 1 October 2021 to 31 March 2022 which allow them to apply (‘petition’) to wind up a debtor company in certain circumstances, easing the pandemic-related restrictions on presenting a petition that applied previously.

Note, however, that the temporary rules do not allow presentation of a petition if the debt is for non-payment of commercial rent by reason of the financial effect of Covid-19 (or any other sums payable under a business tenancy) – referred to in the new rules as ‘excluded debts’.

Recent amendments to the Corporate Insolvency & Government Act 2020 have repealed the restriction that an unsatisfied statutory demand could not be used as a basis for the presentation of winding up petition.

The conditions that must apply before bringing a petition are:

• The debt must be for a fixed (‘liquidated’) amount, now due, of at least £10,000 (either one debt or the total of a number of debts due from the same debtor).
• The business must give the debtor written notice of the debt, containing prescribed information and giving the debtor an opportunity to make proposals for paying it.
• Twenty-one days must have passed after service of the written notice without the debtor having made a satisfactory proposal for paying the debt (although the rules do not contain criteria for determining whether a proposal is satisfactory).

The business can apply to the court to forego or ease certain of the conditions – for example, to order that the 21-day time limit be reduced, or that the business need not ask the debtor for a proposal for paying the debt. If a proposal is made but rejected the business must include its reasons why the proposal is not satisfactory in the subsequent petition. Again, though, the new rules do not set out the criteria to be satisfied on such applications.

The petition must also contain other wording generally, reflecting that it is submitted under the temporary rules.

It is not yet known if the new rules will be extended after 31 March 2022.

Businesses should ensure they are equipped to use the new, temporary procedures to allow them to present a winding up petition against a debtor where the conditions can be satisfied, including setting up appropriate policies, procedures and staff training, during the temporary period.

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