Statutory demands and winding-up notices
Updated 5 June 2020
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The measures on statutory demands and winding-up petitions included in the Corporate Insolvency and Governance Bill are temporary measures.
What are we going to do?
The Bill helps struggling businesses by temporarily removing the threat of winding-up proceedings where unpaid debt is due to Covid-19. It introduces temporary provisions to void statutory demands issued against companies during the emergency. This gives businesses the opportunity to reach realistic and fair agreements with all creditors.
How will it work in practice?
A company supplies ingredients to the restaurant trade and others. As a result of the coronavirus emergency, demand has fallen and so it is no longer able to meet the debts it owes to its own suppliers who start to pressure for payment. The directors are worried the company will be forced into liquidation by the suppliers it owes money to, and that if a winding-up petition is filed with the court then its customers will look elsewhere regardless of the outcome.
During the period that these measures apply, the company will be protected from certain actions its creditors might otherwise take:
- A creditor cannot use statutory demands to threaten that the company will be wound up if it does not pay what is owed. Any statutory demand made in this period will be void, and the creditor must find another way to demonstrate that the company cannot pay its debts.
- Creditors are also prohibited from bringing a winding-up petition against the company unless they reasonably believe that the company’s inability to pay its debts is not the result of coronavirus. If they do present a petition, the court will not will not make a winding-up order until the creditor demonstrates that the pandemic is not the reason the company cannot pay its debts. In addition the fact that the petition has been presented will not be advertised or publicised in advance of the hearing of the petition unless the court has concluded that it is likely that the pandemic is not the reason the company cannot pay its debts. Unless these requirements are met, the company will be protected from being wound up and from the disruption that the petition would otherwise cause (for example to its relationships with its other suppliers and its customers).
- This protection is different to the one provided by a stand-alone moratorium on creditor action, another measure that has been included in this Bill: a moratorium is available to companies regardless of whether their inability to pay their debts is coronavirus-related. It will usually have a shorter duration but applies to a wider range of creditor actions. The moratorium aims to give struggling companies a short breathing space when they need it to take action to deal with their debts, rather than protecting them during a specific period set by the Government.
Who will it apply to?
These measures will apply to:
- Companies
- Unregistered companies
- Limited Liability Partnerships
- Charitable Incorporated Organisations
The measures will not apply to individuals. This is beyond the scope of the Bill.