Corporate Insolvency and Governance Bill: Statutory demands, winding up petitions and considerations for creditors

29 Jul 2020

The Corporate Insolvency and Governance Bill introduces substantial restrictions on the circumstances when a winding up petition can be brought, to the extent that this will effectively be an unviable option for many creditors seeking to take enforcement action over the next few months.

There is a retrospective nullity of statutory demands served from 1 March until 30 September. Many creditors will have served statutory demands in good faith during this period, which will have no impact and cannot be relied on. Whilst there are some exceptions, it is fair to say that the chances of having a winding up order made for the next few months are fairly slim. Any creditor seeking to push ahead will need to ensure the petition is drafted with utmost care to convince a court that one of the relevant exceptions can be satisfied.

The exceptions require a petitioner to show there are reasonable grounds for believing that COVID-19 has not had a financial effect on the company, or that the pursued debt would have arisen in any event. Given the widespread impact of the pandemic, creditors should take expert advice on whether these grounds are likely to be met before issuing, or risk wasting the substantial costs of bringing a winding up petition. It is likely that, moving forward, any struggling businesses will seek to resist any petition on this basis and creditors should therefore be prepared in advance to meet this argument.

Creditors unable to satisfy one of the exceptions will need to think outside the box for alternative options to protect their interests, including personal guarantees, court proceedings, or even negotiation or mediation.

If you are a debtor company seeking to recover its business following the COVID-19 lockdown and have been served with a statutory demand or winding up petition, it is worth obtaining advice as to your position to ensure that it is fully protected.

In the second part of our series on the new Corporate Insolvency and Governance Bill, we consider some of the changes that will affect the directors of any struggling business at this time.
Please follow the links below to read more in our three part series about the new Corporate Insolvency and Governance Bill:

If you require assistance in relation to the Bill, please contact Jennifer Bowes or Maxine Nutting on 023 8032 1000 or get in touch here.

Author

Maxine Nutting

Solicitor