End to ban on winding up petitions – Except for landlords…

The current position

The Corporate Insolvency and Governance Act 2020 imposed an effective ban on winding up petitions (and, by extension, the use of statutory demands) in order to provide businesses with some much-needed breathing space whilst navigating the economic impact of the pandemic. The ban – originally running to September 2020 – was then repeatedly extended, and is currently due to expire on 30 September 2021. Although the Government has announced that other, similar restrictions on enforcement action (such as the ban on commercial lease forfeiture) are to be extended until March 2022, nothing had been confirmed in relation to winding up proceedings – until now.

The announcement

In a press release published yesterday (9 September), the Insolvency Service confirmed that the existing rules will be “phased out” with effect from 1 October 2021. However, the limited information contained in the release suggests that the existing ban will in fact be withdrawn entirely, with creditors once again able to pursue winding up proceedings against corporate debtors. Such action will, however, be subject to two new conditions which will remain effective until 31 March 2022, namely:

1. An increase to the minimum debt required for the presentation of a winding up petition (from £750 to £10,000); and
2. A requirement that creditors seek payment proposals from debtors, affording them 21 days for a response before progressing the winding up action.

What about landlords?

The Government’s press release would have initially appeared as welcome news to the nation’s landlords, many of whom have found themselves largely powerless over the past 18 months to enforce mounting arrears due from their commercial tenants. Unfortunately, despite the appealing headlines, the situation for landlords is little improved.

The release makes clear that:

“…the existing restrictions will remain on commercial landlords from presenting winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.”

It goes on to explain that this measure is intended specifically to dovetail with the extension of the ban on commercial lease forfeiture, while the Government looks to finalise the details of its pandemic rent arbitration scheme.

What arrears will be protected?

Again, the press release itself is typically light on detail, and it is not yet clear how the legislation will define what constitutes “rent arrears built up during the pandemic.” However, in a policy paper published on 4 August (setting out its initial proposals for the aforementioned arbitration scheme), the Government’s approach was set out as follows:

“The legislation will ringfence rent debt accrued from March 2020 for commercial tenants who have been affected by COVID-19 business closures until restrictions for their sector are removed.”

If the rules on winding up petitions follow suit, landlords may take some solace after all. The policy document wording suggests a fairly strict approach to what constitutes pandemic arrears; not only would the business in question need to have closed during one or more of the Covid lockdowns, but the ban would also apply only to arrears accrued during such closures.

In such a case, landlords might feasibly be able to pursue winding up petitions against tenants who were not forced to close (the so-called “essential” retailers) or in relation to arrears that accrued outside one of the fixed lockdown periods that applied to the relevant tenant’s sector.

These and other issues will be clarified with the publication of the secondary legislation required to give effect to the new rules, and further updates will be issued as additional information becomes available.

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