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Easing of Winding Up restrictions

After a very long wait for creditors during a difficult economic period, the restrictions to Winding Up actions, introduced in response to the Covid-19 pandemic, are set to be relaxed with effect from 1 October 2021.

The position presently

The Corporate Insolvency and Governance Act 2020 (The Act), which became law on 26 June 2020, had a substantial impact upon creditors’ ability to recover debts from commercial debtors using insolvency.  The provisions of the Act has prevented creditors from issuing Winding Up petitions since 27 April 2020 unless the creditor had reasonable grounds to believe that:

  • coronavirus has not had a financial effect on the debtor, and/or
  • the debtor would have been unable to pay its debts even if coronavirus had not had a financial effect on the debtor.

The restrictions which were initially introduced until September 2020 were repeatedly extended and presently expire on 30 September 2021.

Post 1 October 2021

The government has announced that the restrictions will be eased from 1 October 2021.  New legislation  is expected to be introduced which will introduce interim measures lasting until 31 March 2022 which seek to assist smaller companies.  The detail of the measures has not yet been revealed and creditors will need to await the publication of the legislation for precise details.  At this stage, we know that the following interim restrictions will apply until 31 March 2022:

  • The financial threshold for issuing Winding Up Petitions will be raised to £10,000 or more; and
  • Creditors must issue a 21 day notice seeking proposals for payment from the debtor before presenting a petition.

The way forward

The position will not be fully clarified until the legislation is issued and this raises immediate questions as to whether the content and format of the 21 day notice is prescribed and whether it can be issued prior to 1 October 2021.

All in all this is a positive development in the debt recovery sector and will undoubtedly assist creditors with high level debts owed by commercial debtors. Whether the financial threshold will remain at this level is not yet known but it would not be unexpected if it were to be raised more permanently to a level higher than the previous £750 limit.

Watch this space for further developments.

For further information, please get in touch.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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