This must be a wind up!

In a recent article, my colleague Chris Drinkall highlighted that the moratorium on forfeiture for rent arrears has once again been extended  This is not the only extension announced this month, however, as the restrictions on the service of winding up petitions has also been extended.

As a quick reminder of the events so far, as part of numerous measures introduced in response to COVID-19, a restriction on winding-up petitions based on a company’s inability to pay its debts was introduced in March 2020. Like many of the measures, this has yet again been extended, and now applies until 30 September 2021.

It is worth remembering that this measure does not apply if the creditor has reasonable grounds for believing that either COVID-19 has not had a financial effect on the company, or that the circumstances forming the basis for the winding up petition would have occurred even if COVID-19 had not had a financial impact on the company. However, in practice it would be very difficult for a creditor to be able to demonstrate this in light of the current climate.

Clearly there is a need to protect  businesses that have been impacted by the pandemic that require time and support to help them recover. However, the numerous extensions have resulted in a number of businesses being able to continue operating and building up debt at the expense of creditors, instead of undergoing an insolvency or restructuring process. Although these measures are predominantly positive, they have inadvertently artificially suppressed insolvency levels, which could cause problems later down the line.

Posted on: 24/06/2021

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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