Previous COVID-19 related restrictions that stopped creditors from presenting winding-up petitions to the courts to liquidate companies that owed them money have now ended – but new rules are now in force that make issuing petitions harder and more expensive.
These say that, before issuing a petition, a creditor must now show it has complied with four ‘Conditions’ A to D.
The Conditions require the creditor, before it can present a petition, to serve a notice on the debtor company:
- Setting out the amount owed, how the debt arose and how it is due.
- Asking for the company’s proposals for payment.
- Giving the creditor 21 days to respond.
- Stating that the creditor will present a petition if no acceptable proposals are made in that period.
Also, no petition can be presented unless the debt is £10,000 or more (which may be either a single debt or a number of debts which, together, exceed the limit).
These changes contrast significantly with the previous position, which was that a creditor, provided they were owed at least £750, could present a winding-up petition against a limited company without contacting the company at all – no notice or written demand was necessary.
The changes could have a major impact on creditors’ ability to collect debts from limited companies. First, creditors will need to use alternative ways to collect debts of less than £10,000 – a winding-up petition simply won’t be available. Second, where a debt equals or exceeds that sum, they must factor in the delay and extra costs of complying with the Conditions.
It is also uncertain what will amount to ‘an acceptable proposal’ following service of a notice - though there is a similar requirement in bankruptcy law applying to individuals, and the courts’ construction of the words in that context may be helpful.
Operative date
- Now
Recommendation
- Individuals or businesses should review their debt collection policies and procedures (and their credit checking systems when taking on new customers) to take account of the new rules, to protect their cashflow and profitability.
This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.
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