How has the Coronavirus pandemic affected winding-up petitions?

A winding up petition represents a very serious threat against your company meaning it could be closed down quickly if a winding up order is granted by the courts, but what has been happening to winding up petitions during the coronavirus pandemic?

The government brought in a range of measures to help businesses deal with financial distress and creditor pressure brought on by the pandemic.  New legislation was been passed to protect commercial tenants in the retail sector from legal action and eviction by their landlords and a general moratorium to protect other businesses was also introduced.

The government introduced a temporary ban on commercial property landlords from issuing statutory demands and winding-up petitions against tenant companies unable to pay amounts owed under their lease due to coronavirus.

Protection from winding up petitions for some commercial tenants

For those businesses covered under the legislation mentioned above, the moratorium may provide protection from creditor legal action if they can prove their financial difficulties stemmed from the COVID-19 outbreak.  The evidence presented by different businesses will vary but could include financial paperwork and documentary evidence showing the debts in question arose after the initial virus outbreak was reported in late January.

Considerations regarding winding up petitions during the coronavirus lockdown

Winding up petitions presented at court prior to 27th April 2020 are still being heard by the courts, but via video link rather than ‘in-person’ hearings. The court system is currently unable to function as normal, so there are various issues that require consideration when it comes to winding up petitions during coronavirus lockdown.

These include:

• A possible backlog of petitions waiting to be heard caused not only by the changes in court procedure and sheer number of actions taking place but also the practical elements of serving a petition on businesses that don’t currently operate from their usual premises
• A slowing down of the system may delay withdrawal of a winding up petition if the debt is paid during which time other creditors may seize the opportunity to take over the petition
• If the banks become aware that a winding up petition is in the system they may freeze the debtor company’s bank accounts
• Businesses that were going to defend a winding up petition may be unable to do so and face further lengthy periods of uncertainty

This situation in which non-essential businesses are unable to trade and have no control over when trading will recommence and suppliers and other creditors that are urgently trying to collect their debts simply to survive this crisis is unprecedented.

If you would like more information on winding up petitions and the coronavirus lockdown contact us for advice on 0800 331 7417.