Comfort for businesses experiencing creditor pressure
A temporary ban on statutory demands and winding-up petitions extended, suspension of wrongful trading reintroduced, and further protection for commercial tenants
Temporary restrictions on statutory demands and winding up petitions was extended from 31 December 2020 to 31 March 2021, along with bans on business evictions and landlords using Commercial Rent Arrears Recovery.
This is the second time the restrictions (which were first introduced with effect from 1 March 2020 for the statutory demand restrictions and 27 April 2020 for the winding up petition restrictions) they have been extended.
What are the restrictions?
Creditors cannot rely upon an unpaid statutory demand as evidence of inability to pay debts in order to issue a winding-up petition against a company, effectively rendering the statutory demand void for that purpose.
Winding up petitions
A creditor’s winding up petition cannot be presented before 31 March 2021, unless the creditor has reasonable grounds for believing:
(a) coronavirus has not had a financial effect on the debtor, or
(b) the debtor would have been unable to pay its debts even if coronavirus had not a financial effect on the debtor.
As to the meaning of “financial effect” – coronavirus has a “financial effect” on a debtor if the debtor’s financial position worsens for reasons relating to coronavirus.
While the restriction on winding up petitions does not mean that a winding up petition cannot be presented, the petitioner will have to overcome the ‘coronavirus test’ in order to proceed with a petition. Petitions, which are usually public, remain private until a judge has determined whether the petitioner has overcome the coronavirus test.
A court can only make a winding up order on the grounds that a debtor is unable to pay its debts if it is satisfied that this would have been the case even if coronavirus had not had a financial effect on the debtor.
Although some may see this extension as a much-needed further relief to ailing businesses, others view it as simply “delaying the inevitable”. We will have to wait and see if there will be a flood of winding up petitions filed when the temporary measures end.
Suspension of wrongful trading
The government reintroduced the temporary suspension of wrongful trading measures from 26 November 2020 until 30 April 2021. The suspension was originally introduced in March 2020 and expired on 30 September 2020.
The suspension of wrongful trading measures means that liquidators and administrators can’t bring claims for wrongful trading against directors for losses. It is worth noting that the reintroduced suspension of wrongful trading is not retrospective and therefore directors could be responsible for any worsening of financial condition between the end of the first suspension on 30 September and the 26 November when the second suspension started.
Protection of commercial tenants
The moratorium on forfeiture of commercial leases for non-payment of rent has also been extended to 31 March 2021 although the Secretary of State has indicated that this will be its final moratorium, and that “those that are able to pay their rent should do so.”
The moratorium’s extension provides relief for tenants, particularly in the retail and hospitality sectors. However, as the government has been clear that this is the final extension to the moratorium, tenants need to be making firm plans to address their accrued and ongoing lease liabilities.
For confidential advice please contact Ben directly firstname.lastname@example.org
The information was correct at time of publishing but may now be out of date.