Thousands of businesses have been impacted by the global coronavirus pandemic since March 2020. Amidst several lockdowns and a range of restrictions, many businesses have suffered financially, and some will now have to face the reality of insolvency.
If this is the case, creditors to whom the company owes money will want to get back money they are owed. If their repayment demands have gone ignored, creditors will often issue a winding-up petition to the courts.
However, the government has introduced temporary measures to winding-up petitions as part of the Corporate Insolvency and Governance Act 2020. So, what does this mean for businesses?
In this guide, Clarke Bell outlines everything a business owner needs to know about the suspension of winding-up petitions due to covid and how this could affect you.
Winding-up petitions explained
When a company owes a creditor a sum of money over the value of £750 and has failed to repay the amount after 21 days of being asked for it, the creditor has the right to go to the courts in order to get back what they are owed.
If this is the case, the creditor will issue a winding-up petition to the court. From this point, the company’s bank account can be frozen. At this stage, any other creditors who want to join in on the petition have the chance to do so.
If this is successful, the court will then issue the company with a winding-up order which will forcibly liquidate the company.
This is known as compulsory liquidation and is the most serious form of action that can be taken against a company.
An Insolvency Practitioner must be appointed to investigate the company and directors to see if the situation occurred due to fraudulent or wrongful trading.
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Are winding-up petitions suspended during covid?
Outside of Covid, a winding-up petition would typically be the route taken by creditors who are owed money.
However, in light of the coronavirus pandemic, the government has put temporary measures in place that put restrictions on winding-up petitions.
What does the winding-up petition moratorium mean?
The moratorium measures outlined by the government mean that a creditor that is owed money by a business can no longer issue a winding-up petition to the courts unless:
- They can show that the pandemic hasn’t caused disruption to the company
- They can show that the company would be in financial trouble despite the pandemic
This means that if covid is not the reason that the company can’t repay their debts, then the courts will still allow the winding-up petition to go through and progress.
With these new measures, if covid is the cause of the business’s financial trouble, creditors can’t issue a winding-up petition for the relevant period which has now been extended from the 1st March 2020 and will now last until 30th September 2021.
Any winding-up petition that is issued to the courts throughout this period will be assessed and the courts will aim to determine the reasons that the company hasn’t paid back its debts.
If it is established that the company hasn’t repaid their debts as they have been badly impacted by the pandemic, then no winding-up petition can be issued.
What are my options?
If your business has been struggling due to covid and you believe that your creditors will be able to issue a winding-up petition against you once the moratorium is finished, you will need to know what your options are.
If you act quickly, one option that will be open to you to stop the winding-up petition is to enter into a Creditors’ Voluntary Liquidation.
Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation lets a company director close their business voluntarily, meaning they can avoid being forced into compulsory liquidation.
A CVL is a good option for companies that are insolvent and do not have a viable future. This is a route that allows the company director to take control of the situation and close their company in a correct way.
By closing the company through a CVL, the director will be free to open another company in the future.
Company Voluntary Arrangement (CVA)
Another option open to directors is a Company Voluntary Arrangement (CVA). Unlike a CVL which closes the company, a Company Voluntary Arrangement is a route for business rescue.
Here, the director and creditors come to a formal agreement over how and when they will repay their debts. This allows the company to repay their debts in a realistic way over an agreed timescale which usually lasts between 2 – 5 years.
A company can only enter into a CVA if an Insolvency Practitioner believes there are real chances that it can be successfully turned around.
A company can also enter into pre-pack administration.
Whilst under administration, the company will be given protection against any legal action. This is a process that puts the company into administration and then selling it and its assets. The sale has to be agreed before the company is put into administration.
Find out more here.
Clarke Bell is here to help you with the next steps
Whatever your situation, if your business is struggling and you want to know the best route forward for you, Clarke Bell is here to help.
Whether you are looking for expert insolvency advice or want to know what your options are when it comes to liquidating or rescuing your business, our team of friendly professionals will help you move forward.
We will work closely with you to assess your situation and get the best outcome possible.
To see how we can help you today, or to gather some free initial advice, just get in touch with the Clarke Bell team today.