Statutory Demands & Winding Up Petitions During the Pandemic

The Corporate Insolvency and Governance Bill 2020 has been introduced to help struggling businesses by temporarily removing the threat of winding up proceedings where the debtor can argue that the unpaid debt is due to COVID-19.

Prior to the introduction of this temporary legislation, a creditor could serve a Statutory Demand upon a debtor company and upon no payment or appropriate  response being received  was entitled to presume that the criteria of Section 123 of the Insolvency Act 1986 was met i.e. that the debtor could not make payment of its debts as and when they fell due, and was therefore insolvent.

The Statutory Demand being unanswered provided the necessary springboard to a Winding Up Petition.

Now, creditors cannot use statutory demands to threaten that a company will be wound up if it does not pay what is owed. Any statutory demand made during the present emergency will be void.

Creditors are also prohibited from bringing a winding-up petition against the debtor company unless they reasonably believe that the company’s inability to pay its debts is not the result of coronavirus. If they do present a petition, the court will not will not make a winding-up order until the creditor demonstrates that the pandemic is not the reason the company cannot pay its debts.

In addition, the fact that the petition has been presented will not be advertised or publicised in advance of the hearing of the petition unless the court has concluded that it is likely that the pandemic is not the reason the company cannot pay its debts. A further protection.

The aim is to give businesses the opportunity to reach realistic and fair agreements with all creditors.

The provision applies to companies, Unregistered companies, Limited Liability Partnerships and Charitable incorporated Organisations. It does not apply to individuals.

Proceedings in the County Court are unaffected by this legislation. Parties can still issue County Court Claims in respect of unpaid debts and use the gamut of alternative enforcement options.

If you have any questions regarding the scope of the temporary changes or wish to discuss alternative options, please contact us 01892 773100.