The temporary restrictions that prohibit winding up proceedings where non-payment is COVID-19 related, and restrict petitions based on unsatisfied statutory demands, that would have come to an end on 31 December 2020 have been extended until 31 March 2021.

What are the restrictions?

Statutory demands

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 that;

(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 had a financial effect on the debtor.

As to the meaning of “financial effect”, it appears to be a low threshold – coronavirus has a “financial effect” on a debtor if the debtor’s financial position worsens in consequence of, or 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.

Comment

Although some may see this extension as a much-needed further relief to ailing businesses, others are likely to see it as simply “delaying the inevitable”.  We will have to wait and see if there will be a flood of winding up petitions filed as soon as the temporary measures end.

For further reading about the additional steps that a petitioner needs to take when presenting a winding up petition, see our previous blog.

This post was written by Rory Thomas.