22 September 2021
Relaxation of Temporary Restrictions on Statutory Demands and Winding-Up Petitions
When the Covid-19 pandemic hit last year, the government moved to implement insolvency measures to support businesses during the pandemic and help them recover, such as protecting businesses from aggressive creditor enforcement and removing personal liability on company directors. The measures were introduced in the Corporate Insolvency and Governance Act in March 2020 and have been extended on several occasions. However, these temporary restrictions are now set to be phased out, with new targeted measures to support small businesses and commercial tenants set to be introduced.
The government announced on 9 September 2021 that they will begin the process of withdrawing its legislative support of businesses facing financial difficulties because of the coronavirus pandemic.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 will take effect on 29 September 2021. The new regulations will lift the current measures introduced at the outset of the pandemic relating to the presentation of statutory demands and winding-up petitions where debts were accruing because of the economic effects of the pandemic.
The new Regulations will apply in a ‘relevant period’ currently due to expire on 31 March 2022. The Regulations state that:
- Creditors cannot present winding-up petitions for commercial rent that is unpaid as a result of the financial effect of the coronavirus pandemic.
- Creditors cannot present winding-up petitions for debts worth up to £10,000.
- A creditor must issue a ‘Schedule 10 Notice’ seeking the debtor’s proposals for payment of the debt prior to presenting a petition. The creditor may then present a petition after 21 days if the debtor has not put forward a proposal to the creditor’s satisfaction. A creditor can apply to the court for permission not to serve a Schedule 10 Notice to give the requisite 21 days to make a proposal but the guidance on how successful such an application will be is not clear.
- Creditors can, once again, rely on an unsatisfied statutory demand as evidence of a debtor’s inability to pay its debts as and when they fall due.
By temporarily increasing the limit for the presentation of winding-up petitions from £750 to £10,000, the new Regulations look to strike a balance between the need for creditors to be paid and the need to protect otherwise viable businesses from insolvency action where the debt is relatively small.
The Schedule 10 Notice requirement seems sensible as it encourages a conciliatory approach. If parties can seek an agreement as to the repayment of commercial debts at an early stage, then this may help to stave off an ‘insolvency tsunami.’
While this announcement will bring relief to some creditors who have been unable to enforce their debt for the past 18 months, commercial landlords may feel short-changed by the Regulations because it remains prohibited to serve statutory demands and winding-up petitions for commercial rent accrued during the pandemic, thereby curtailing their range of available remedies to recover unpaid rent.
If relationships between parties are breaking down and there is no scope of reaching agreement on sums due, there are still some steps that both creditors considering enforcement options and debtors concerned about receiving a statutory demand or winding-up petition can take to try to protect their position.