Major restrictions on the use of winding-up procedures

The government has introduced fundamental changes to the procedures for presenting winding-up petitions and making winding-up orders in the Corporate Governance and Insolvency Bill.

Among the detailed provisions in the new bill, those of immediate concern to property investors, landlords and tenants are the wide-ranging restrictions on the use of statutory demands and winding-up petitions. The initial announcement by the government suggested that these would be limited to landlord and tenant relationships. However, the provisions in the bill will apply to all creditors and companies. The provisions may be amended as the bill is debated in parliament.

The provisions, which will apply retrospectively, prevent a creditor relying on the non-payment under a statutory demand served on or after 1 March 2020 as the ground for presenting a winding-up petition.

If the creditor has other grounds for presenting a winding-up petition, it will have to certify that it has reasonable grounds for believing that coronavirus has not had a financial effect on the company or that the ground relied upon would apply even if coronavirus had not had a financial impact on the company. This will be a high hurdle for the creditor as it will not have detailed financial information about the company to determine whether the condition is satisfied.

If a winding-up petition has already been presented, the court will have power to determine whether or not it should proceed in light of the new restrictions. Winding-up orders already made on after 27 April 2020 will be void if they could not have been made had the new provisions been in force.

The new provisions will apply until 30 June 2020 or, if later, to the date one month after the new bill becomes law. As the second reading of the bill is timetabled for June 2020, the provisions are likely to be extended.