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The Corporate Insolvency and Governance Act 2020 (CIGA 2020) marked significant changes to UK insolvency law, gaining royal assent on 25^th June 2020 after just 5 ½ weeks. CIGA 2020 introduced several permanent and temporary procedures intended to assist companies facing financial difficulty as a result of the coronavirus pandemic.

Prior to 1 October 2021, statutory demands could not be used as a basis for presenting a winding-up petition.  Similarly, a winding-up petition could not be presented unless it could reasonably be believed that the coronavirus had no financial effect on the business, or, that the company would have been unable to pay its debts regardless of the financial impact of coronavirus.

What has changed from 1 October 2021?

On 9 September 2021, the government announced that the winding-up petition restrictions would not be extended past 30 September 2021. Instead, the restrictions have been replaced by a more limited set of conditions for winding-up petitions presented between 1 October 2021 until 22 March 2022.

A creditor will now be able to present a petition for the winding-up of a company provided the following four conditions are met (the Regulations):

1. Condition A – a debt excluding commercial rent arrears or other payments due under a relevant business tenancy must be owed to the creditor;
2. Condition B – a written ‘Schedule 10 Notice’ seeking repayment of the debt must be delivered to the company requesting a payment proposal within 21 days of the date of delivery and informing the debtor of the intention to issue a winding-up petition if not received;
3. Condition C – the debtor must have provided no response to the creditor’s satisfaction upon expiry of the 21-day period;
4. Condition D – the debt owed to the petitioning creditor amounts to £10,000 or more.

What effect will these changes have?

The legislation repeals the restriction preventing an unsatisfied statutory demand from being the basis of a winding-up petition. It also introduces, for the first time, a new debt threshold of £10,000 for winding up petitions. This is distinct from the existing threshold of £750 to serve a statutory demand on companies which, notably, the Government has chosen not to increase. This means that from 1 October, to present a petition to wind up a company based on an unsatisfied statutory demand, the debt owed to the creditor must accrue to £10,000 or more.

The condition allowing debtors to offer a proposal of payment to creditors shows a clear shift towards a compromise-based approach to settling debts. Whilst the decision as to a satisfactory proposal is ultimately in the creditors’ hands, it remains to be seen how the Courts will interpret the rejection of a reasonable proposal.

The Regulations provide for the return of a winding-up petition as a viable option for creditors once again, albeit in more limited circumstances, and this change will likely be the driving force behind companies entering into serious negotiations with their creditors to agree a solution. Interestingly, it is no longer necessary to consider the impact of the coronavirus pandemic on companies when issuing winding-up petitions, though the protection for commercial tenants for rent arrears built up during the pandemic will continue.