RESTRICTIONS ON WINDING-UP LIFTED FROM 1 OCTOBER 2021 – BUT WHAT ARE THE NEW CONDITIONS WHICH CREDITORS MUST SATISFY?

The UK Government has announced that the temporary measures which were put in place to protect businesses from insolvency during the pandemic are to be lifted and from 1 October 2021. This means that creditors will be able to seek to wind up debtors who owe them money. But, the devil is in the detail. Creditors do not have carte blanche and new conditions apply. In order to continue to promote business rescue, these conditions will remain in place from 1 October 2021 to 31 March 2022.

Schedule 10 of the Corporate Insolvency and Governance Act 2020 stipulates that an application to wind up a company, on the basis that it is unable to pay its debts, cannot be made unless four conditions are satisfied:

Condition A – the creditor is owed a debt which is liquidated, has fallen due for payment and is not an excluded debt**.

**we'll come back to this.

Condition B – the creditor has delivered a written notice to the debtor which sets out:

1. the identification details for the debtor (one assumes company number and registered address)
2. the full details of the creditor
3. the amount of debt owed and how it arises
4. the date of the notice
5. a statement that the creditor is seeking the debtor's proposals for payment of the debt; and
6. a statement that if no proposal is made to the creditor's satisfaction within 21 days beginning with the date on which the notice is delivered the creditor intends to present a winding up petition to the court.

Condition C – is at the end of the 21 days (beginning with the date on which the notice is given) no proposal for payment of the debt has been made by the debtor or no proposal which meets the creditor's satisfaction has been made.

Condition D – the creditor(s) is owed the sum of £10,000 or more.

Landlords beware – "excluded debt"?

An "excluded debt" is a debt in respect of rent, or any sum or other payment that a tenant is liable to pay and which is unpaid by reason of a financial effect of coronavirus. In England and Wales, it is any rent (or other payment) under a relevant business tenancy. And in Scotland, it is rent (or any other payment) in terms of a lease as defined in section 7(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (i.e. a lease of land which is not used for residential, agricultural or crofting purposes).

Generally speaking therefore UK Landlords will be prevented from being able to enforce, by way of winding up, any rent arrears, which have built up or fallen due during the pandemic until at least 31 March 2022.

There is however some conditionality to the definition of "excluded debt". It only applies if the debt (e.g. rent) is unpaid by reason of a financial effect of coronavirus. This means that a Landlord could still seek to wind up where they say that the coronavirus has had no financial effect on the debtor's ability to pay. This is likely to be a tall order in most instances. What we know about the "coronavirus test", from cases such as Re A Company [2021] EWHC 2289 (Ch), is that the courts have applied a low threshold when determining whether a debtor is able to prove that COVID has had a financial impact on it.

The impact of the Conditions:

The news that creditors can now wind-up debtors who have failed to pay will be welcome news in some sectors. But we expect the courts to apply the Conditions strictly. If there is a failure to comply then a creditor should expect the court to refuse its petition and, potentially, to find it liable in the expenses (or costs) of the petition. This might be quite a bitter pill to swallow when a creditor has been waiting on payment of debt, which is perhaps impacting its own cashflow.

There are still some choppy waters to navigate before we get out of the storm of the pandemic. If you are owed monies take advice before jumping feet first as it is likely to save you time and money.