Biz Extra

Published: November 22, 2021 | Updated: November 23, 2021

Experts Michelle Hayter and Malcolm Niekirk from Frettens Solicitors with this month’s Q&A

By Andrew Diprose, editor

Michelle Hayter, Dispute Resolution Partner, and Malcolm Niekirk, Insolvency and Restructuring Partner, answer your questions on Winding Up Petitions.

What is a Statutory Demand?

It’s a form used to demand payment of a debt.

It gives the debtor 21 days to pay. Suppose they don’t pay – and don’t have a legitimate dispute over the whole debt.

Then you can ask the court to issue a winding up petition.  (Unless the debtor is an individual.  Then you must use a bankruptcy petition, which is different in several ways.)

What are winding up petitions?

A Winding up petition is a court process. A business that is owed money can use it to ‘shut down’ its debtor.

A creditor owed more than £10,000 can present a petition to ask the court to make a winding up order.

The winding up order – if made – puts the debtor into liquidation.

However, back in March 2020, protections against winding up petitions were put in place.

What were the protections against winding up petitions?

The original temporary protections against winding up petitions lasted from March 2020 – September 2021, and were these:

  • Statutory demands had no legal effect if given to the debtor in this period.
  • The courts’ powers to issue winding up petitions were greatly restricted.
  • The courts’ powers to make winding up orders were greatly restricted.

To issue a winding up petition, the creditor would need evidence to show that:

  • The debtor was insolvent; and, either:
    • The debter was not financially affected by Coronavirus; or
    • If coronavirus had a financial effect on the debtor, there was another reason why the debtor was insolvent.

To make a winding up order, the creditor would need to prove to the court that:

  • The debtor was insolvent; and, either:
    • Coronavirus had not had a financial effect on the debtor; or
    • If coronavirus had a financial effect on the debtor, there was another reason why the debtor was insolvent.

These temporary rules modified (but did not replace) the original ‘permanent’ rules.  They made winding up petitions more complicated, and so, more expensive, even when allowed.

What are the new temporary rules?

New, temporary rules have replaced those from October 2021.  They are tighter on landlords than other creditors.

These temporary rules are currently scheduled to last until 31 March 2022.

What are the new temporary rules for landlords?

Landlords are still unable to use winding up petitions to put pressure on their commercial tenants to pay rent that is unpaid as a result of CoViD-19.

This is to work with the other temporary rules that stop commercial landlords from evicting tenants who have not paid rent, as a result of CoViD-19.

When are other creditors permitted to use winding up petitions?

Other creditors can use winding up petitions to put pressure on companies to pay debts (or to force them into liquidation, if they don’t pay).  But:

  • Only if they are owed £10,000 or more (a much larger figure than the pre-CoVid-19 £750).
  • They have to give 21 days’ notice to the debtor and ask them for payment proposals. They aren’t able to dismiss proposals casually; they will need a reason.
  • In most cases they still need to serve a statutory demand on the debtor too (which gives them 21 days to pay). They can serve the demand with the notice. There is no need to wait for one to expire before sending the other to the debtor.
  • Don’t use a statutory demand (or winding up petition) to try to collect a disputed debt. It’s likely to go badly – and expensively – wrong.  That’s not a new rule, it has always been so.

What are your thoughts on the new rules?

In our opinion, this is a step back towards ‘normal’.

HMRC has been an enthusiastic user of winding up petitions in the past, to collect unpaid VAT and PAYE contributions in particular.

It will be interesting to see what their policy is on the exercise of their newly restored legal rights.

Specialist Insolvency Solicitors

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