Restrictions on Winding Up Petitions lifted
From 1st April 2022, restrictions were lifted on issuing Winding Up petitions. As a result, creditors are now able return to issuing petitions for debts over £750 against insolvent businesses.
Due to the Covid-19 pandemic, the Corporate Insolvency and Governance Act 2020 (CIGA 2020) was introduced in June 2020. This prevented creditors issuing Winding Up petitions unless they could show that Covid-19 was not the reason why the business was insolvent.
There were further restrictions placed on Winding Up petitions on 1st October 2021. Whereby, creditors were only be able to issue Winding Up petitions for debts over £10,000 and were required to give a 21 day notice period to debtors before issuing a petition.
However, these restrictions have now ended meaning creditors are able to once again issue Winding Up petitions against insolvent businesses providing the debt is over £750 and it is not disputed.
Prior to issuing a Winding Up petition, the creditor must be able to evidence that the business is insolvent. This is typically done by showing a demand for payment was made to its customer but payment was not forthcoming.
Lovetts Solicitors achieves this by sending a draft Winding Up petition on behalf of creditors. This is where we draft the winding up but hold off on serving it formally. It will be sent only to the debtor with an accompanying letter warning them that if they do not settle the debt within a set time period (usually seven days) then the petition will be submitted at Court. The debtor is often motivated to avoid Court and liquidation, and Lovetts have found that 81% of draft Winding Up petitions result in full payment of the debt.
If a draft Winding Up petition does not achieve the desired effect, the next step is to go to Court. This is the process followed in that situation:
1. The petition is presented (i.e. sent to Court for a hearing date to be given).
2. The petition is served on the company’s registered office.
3. After at least 7 days has passed (but at least 7 days before the hearing is due), the Winding Up is advertised in the London Gazette.
4. Once the Winding Up has been advertised, the debtor’s bank will freeze all company accounts. This effectively prevents them from continuing to trade.
5. At the hearing, the Judge will hear the petition and make a Winding Up Order against the debtor unless they provide a defence or prove they can pay the debt.
6. Once the Order has been made, the official receiver will start the process of liquidating the company and distributing the assets to the creditors.
7. The directors of the company being wound up will be investigated for any wrongful trading. If they are found to have been accepting credit with no expectation of being able to pay it back, they may be found personally liable for certain debts.
As mentioned previously, it is important to establish that the debt is not disputed prior to issuing a Winding Up petition. If the debt is disputed, this may result in an injunction against the petitioner, the petition being thrown out of Court and the creditor being ordered to pay the other side’s legal costs.
However, it is important to act as quickly as possible if you suspect a customer is struggling with cash flow. It is often the creditors that shout the loudest that secure payment first. If you have concerns or you are seeking to take robust action in the form of a draft Winding Up petition, contact us today.