Changes to winding up petitions – legal commentary on impact to creditors
“Since June 2020, creditors and debtors alike have had to contend with fluctuating rules around the use of statutory demands and winding up petitions. It’s created a difficult situation for both parties: businesses that have struggled to cope since the pandemic began have lived with the spectre of debt collection looming over them, whilst many creditors have been unable to recoup costs they are rightfully owed.
“Until today, it hadn’t been possible to present a petition based on statutory demands since last June. In fact, it was only possible to issue one when a creditor had evidence to show that COVID-19 wasn’t the reason for a company’s poor finances, and that the debtor would have been in such a position irrespective of the pandemic.
“Now, winding up petitions are back on the table as a debt recovery option. Though there are still some hurdles in place, including the £10,000 minimum threshold, it does provide creditors with more avenues to pursue debt recovery. Equally, there remain other recovery options these organisations can explore if the amounts owed fall under the new threshold.
“Similarly, the introduction of Schedule 10 notices means creditors can once again rely on statutory demands to commence winding up petitions, and the requirement to show COVID-19 wasn’t responsible for the debt in question has also been removed.
“The introduction of a higher financial threshold and the Schedule 10 notices, though likely to be welcomed by some, mean that creditors and debtors are still not back to the same position as pre-pandemic. The last 18 months has highlighted the importance of open dialogue between all concerned parties to come to a workable solution that minimises distress on both sides. It will be interesting to see how these developments take effect in practice whilst they are in place, but the groundwork has at least now been laid so that the return of the ‘normal’ rules is unlikely to be too far away.”
Robert Ferdinando, a commercial litigation specialist at law firm BLM