Amidst the coronavirus pandemic and the subsequent disruption caused to thousands of businesses across the UK, the government has introduced several temporary measures within the last year.
One of these measures was the temporary restriction of winding-up petitions which was introduced under the Corporate Insolvency and Governance Act 2020. The temporary restriction on winding-up petitions has since been extended and is now in place until 30th September 2021.
In this guide, Clarke Bell explains everything you need to know about the winding-up petition moratorium and how this might impact you.
What is a winding-up petition?
Let’s start by looking at what a winding-up petition moratorium is.
A winding-up petition can be issued to a company that has failed to pay a debt it owes of over £750. The creditor to whom it owes money can decide to send a winding-up petition to the court in order to retrieve the money they are owed.
This is the most serious form of action that can be taken against a business and can have a range of negative consequences for the company director.
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The winding-up petition moratorium explained
However, as we’ve mentioned, the measure put in place by the government has put temporary restrictions on winding-up petitions due to the devastating consequences of the global pandemic on many businesses across the country.
The measures put in place mean that a creditor who is owed money by a company cannot issue a winding-up petition unless it can prove that the pandemic hasn’t caused disruption to the debtor or that the circumstances would have arisen even if the pandemic hadn’t had a financial impact on the company.
This now means that the creditor who is owed money by a company cannot issue a winding-up petition during the ‘relevant period’, which now applies to the period between 1st March 2020 – 30th September 2021.
Any winding-up petition that is issued to the court during this time will be subsequently reviewed by the court who will look into the reasons that the company has not repaid its debts.
If the court determines that the reason the debts have not been repaid is due to Covid-19, then no winding-up order will be issued.
As well as the temporary moratorium on winding-up petitions, the government has also introduced some permanent new measures.
New Insolvency Measures
New measures recently introduced by the government usher in significant changes to insolvency law in the UK.
The first of the new measures aim to give businesses facing financial difficulties more time to find an option for business rescue or a restructuring plan.
This new moratorium means that during a period, a creditor that is owed money can’t take action against it without first seeking the permission of the court. This moratorium is overlooked by a licensed Insolvency Practitioner.
These new measures have been introduced to help more struggling businesses achieve business rescue.
How can a business be rescued?
As the name suggests, business rescue aims to turn around a company that is struggling and make it profitable once more.
There are different ways a business can be rescued, in which an Insolvency Practitioner will need to be appointed.
Company Voluntary Arrangement CVA
A CVA is a legal arrangement that is formed between a company and a creditor to which it owes money. A plan is put together to allow the business to pay back a fixed amount of its debt that is lower than what they owe.
The CVA has to be agreed by 75% of creditors and 50% of shareholders to proceed. As we have mentioned, a licensed Insolvency Practitioner must be appointed to draw up and oversee the agreement.
The Company Voluntary Arrangement will typically last between 3 – 5 years, with payments being made monthly. The remaining debt will be written off at the end of the agreed period.
Whilst the CVA is in place, the company is able to continue operating and trading and the director is still in control of the day-to-day running of the business.
A CVA is usually an option only available to businesses that can show they have real chances of a successful recovery. This must be agreed by the director of the company as well as the Insolvency Practitioner.
Here, the company will need to be able to show projected cash flow forecasts that prove that they should have sufficient funds to cover the repayment terms outlined in the agreement.
A CVA is one option for business rescue, the other is administration. This is another insolvency process that requires the appointment of an Insolvency Practitioner.
This option is one that aims to take control of a struggling company’s assets and pay back creditors what they are owed.
Whilst under administration, a company is protected against any legal action being taken against them, meaning a creditor can’t threaten the business with a winding-up petition.
When a company is placed under administration, several things can happen.
Firstly, the company can enter into a CVA. As we have just looked at, this option lets the company keep trading whilst it works towards becoming profitable once more.
Alternatively, the company can be sold as a going concern to a different company. With this option, the company can continue to run and maintain its client base, employees and orders.
Although these options aim to turn the business around, under administration the company can also be sold as part of a CVL – Creditors’ Voluntary Liquidation. Here, the company will be closed and creditors that are owed money will be repaid from the funds raised from the sale.
Whatever your situation, Clarke Bell are here to help
If your business is struggling financially and you are looking to turn the business around, Clarke Bell are here to help.
We will work with you closely to offer expert insolvency advice geared towards your situation. Get in touch to see how we can help.