Winding Up Petition changes from 1st October 2021

From 1st October 2021, there will be significant changes to Winding Up petitions. This article will explore the changes in further detail but in summary, Creditors will only be able to issue Winding Up petitions for debts over £10,000 and they will need to give a 21 day notice to debtors before issuing a petition. Further, Creditors chasing commercial rent arrears will be prevented from issuing a Winding Up petition.  

Creditors face 4 conditions that they must satisfy before issuing a Winding Up petition. These are:

Condition 1: the debt owed; (a) is for a liquidated amount; (b) has fallen due for payment; and (c) is not rent or any other payments i.e. service charges that are due under a business tenancy agreement;

Condition 2: the creditor has delivered a written notice which states (a) that the creditor is seeking the company’s proposal for the payment of the debt; and (b) that if no satisfactory proposal is made within 21 days of the date of delivery of the notice then the creditor intends to petition for the company’s winding-up;

Condition 3: 21 days have passed since Condition 2 Notice was delivered and the company has not made a satisfactory proposal for the payment of the debt; and

Condition 4: the debt owed to the petitioning creditor (provided they have all met Conditions 1 to 3) is at least £10,000.

Since June 2020, the Corporate Insolvency and Governance Act 2020 meant creditors were essentially prevented from issuing Winding Up petitions against debtors unless that Covid-19 did not have a financial effect on the company; or that the company would have been unable to pay its debts even if Covid-19 had had a financial effect on the company.

The changes from 1st October are seen as an ease on restrictions but the debt threshold for issuing a petition now increases from £750 to £10,000 and there is now arbitrary requirement to issue a 21 day notice, despite there being no obligation for a creditor to accept a payment proposal. These arbitrary barriers to recovering payment from customers failing pay their debts may have a significant impact on the cash flow of a creditor. In particular, it is a devastating blow to creditors pursing commercial rent arrears who are prevented from issuing a winding up petition completely.

These Winding Up petition changes are due to run from 1st October 2021 and end on 31st March 2022 as it currently stands.

Lovetts Solicitors will be providing a service where they enclose a Draft Winding Up petition with the 21 day notice sent to a debtor. In our experience, 81% of cases will result in payment where a draft winding up petition has been sent.

For further information, email [email protected] or call us on 01483 457500.

27 September 2021