UK Government introduces a temporary increase to minimum debt level required for a winding up petition

Restrictions have been in place since the start of the pandemic to prevent creditors taking steps to wind up debtor companies. Those restrictions are due to expire on September 30, 2021. To lessen the risk of October seeing a mass rush by creditors seeking to wind up their debtors, the UK Government has introduced a further temporary measure in connection with liquidation petitions.

The new measures are contained in The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021.

Between 1 October 2021 and [JL1] 31 March 2022, a creditor will be able to present a petition to wind up a debtor only if certain conditions are met. The main conditions are:-

  • The debt must be at least £10,000;
  • The creditor must have given the debtor at least 21 days to put forward proposals for repayment; and
  • The debt must not be in respect of rent or other sum payable by a tenant under a lease.

This temporary measure will therefore give continued breathing space to those companies who owe rent arrears and those who might otherwise have faced winding up proceedings in respect of relatively minor sums.

Clearly the Government has taken the view that the risk to the economy of allowing unrestricted winding up actions after 30 September 2021 was too great, and have instead sought to limit the rights of creditors to those claims that are material (i.e. above £10,000) and which do not relate to leasehold liabilities. The extent to which this limited extension of protection will make a material difference to insolvency numbers is difficult to predict; those debtor companies with higher debt levels will get no more than 21 days grace as a result of this measure, but on the other hand, overly aggressive creditors looking to use winding up as a debt recovery tool will be prevented from doing so.

But at the end of the day, this may just be viewed as kicking the can of the actual day of reckoning for many businesses further down the road. At some point these debt accruals will have to be dealt with.

On that basis now is the time for businesses to consider the effects of the pandemic upon them and to put in place recovery strategies to address those issues.