Andrew Gregory from Leonard Curtis Legal gives the legal perspective on the reintroduction of winding up petitions

With the news that the legal restrictions on the ability of creditors to issue winding up petitions will come to an end on the 30th September, it is worthwhile considering just what are likely to be the practical results as the next few months unfold and we hopefully return to normality.

Since the early days of the pandemic, the government recognised that legislation was needed to put a hold on any action by creditors taking legal action against companies.  This resulted in a ban on the issuing of a winding up petitions with the court unless the judge gave permission first.  This led to a dramatic reduction in the number of petitions issued with the court.

Winding up petitions have been a very important debt collection tool for creditors over many decades.  They are often described as a “class action“. But what does this mean in practice?

Petitions can be issued with the court after the 30th September but only for debts over £10,000 and after the company has been given 21 days’ notice of the threat of a petition.

Will we see a sudden flood of petitions being issued?  It’s worth being aware of the following points:

1. Any petition issued with the court after the 21 day period will likely not be listed for a hearing for at least six weeks, possibly longer, which does not make it a quick fix for creditors.

2. The court may take a very sympathetic approach to companies who appear at the hearing and explain to the judge that they have been, and are continuing to be, affected by the pandemic.  After all, the government has given companies a significant breathing space to enable them to deal with the effects of Covid during the past 18 months – so are judges really going to come down hard on such businesses?  Expect a number of adjournments to give the company more time in appropriate cases.

3. One very important issue is this point about the petition being a class action. The petition has to be advertised in the London Gazette – this can be done within a couple of weeks of it being served on the company – so other creditors get to know about the petition, giving them the ability to support it.  Once the petition has been advertised then this can be the death knell for the company. Suddenly the petition is not just about one creditor’s claim but potentially many more.  In addition, once the petition has been formally advertised then the company’s bank account will usually be frozen making any further trading very difficult.

4. It will be very important for the company to act quickly upon receiving a 21 day notice.  After being kept out of the opportunity to pursue a debt for so long, there may be some very aggressive creditors out there who may issue a petition on the 22nd day.  The petition may be capable of being defended or, if not, then other remedies or courses of action may be open to the company.  But advice needs to be taken early and delay could be fatal to the company’s ability to deal with the impact of the petition.

The changes to the existing status quo are going to introduce a different dynamic between creditors, lenders and businesses in the next few months and we expect to see a significant increase in our work in advising both creditors who are owed money and companies who are building back their businesses after the pandemic.

The important message here for business advisers is, if one of your clients receives a 21 day notice then tell them to act on it immediately and not leave it to the last moment – it is vital that they get advice on what their options are.

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