Important changes to winding up processes from October 2021

Since March 2020, there has been a ban on asking the Court to wind up a company on grounds that it hasn’t paid an outstanding debt due to the disruption caused by the pandemic. That ban comes to an end on 30 September 2021.

So what is next? A tsunami of winding up petitions hitting the courts? It seems the government is still keen to avoid the cliff edge and has set out a couple of temporary measures which it sees as helping avoid this. These new rules last until 31 March 2022.

The key measures are:

• Before presenting a winding up petition the creditor must seek repayment proposals from the debtor company in writing. The debtor company has 21 days in which to make proposals.

This is an interesting departure from the normal process where a creditor presents a statutory demand which requires payment in full within 21 days. Proposals to pay may be deemed unacceptable by the creditor and the new rules indicate that a winding up petition can still be lodged if the proposals are unacceptable. It will be interesting to see how judges react – and whether they start getting involved with the question of whether a proposed payment plan is acceptable or not.

• A winding up petition cannot be filed for a debt of less than £10,000.

The current threshold for presenting a winding up petition is £750. This will leave many SMEs in no man’s land where their nuclear option of threatening to wind up a customer who hasn’t paid is off the table for another 6 months. 

Business owners have become familiar with the statutory demand in the unfortunate situation where they cannot pay a debt on time.  It serves as an alarm bell to resolve issues before a winding up petition is received (which can be very difficult to deal with). In the current, stressed, climate business owners and finance teams need to look out for what might seem like rather less “heavy” requests for proposals to pay – beware they have the same clout as the statutory demand! Look out for sentences within any such communications which mention winding up petitions and seek advice quickly.

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