Winding up petition debt threshold to be increased in wake of pandemic

The debt threshold for a winding up petition will be temporarily increased in wake of the coronavirus pandemic, it has been announced.

It comes as temporary measures preventing businesses from entering insolvency are phased out next month.

According to the Insolvency Service, companies in financial distress as a result of Covid-19 disruption have been protected from creditor action since June last year.

Under the Corporate Insolvency and Governance Act 2020, creditors have been unable to initiate aggressive enforcement action, such as statutory demands and winding-up petitions, when debts are Covid-related.

But now that coronavirus restrictions have been lifted, the measures protecting businesses from insolvency will be phased out from 01 October and replaced by a new set of rules until 31 March 2022.

The regulator said the new legislation will:

  • Protect businesses from creditors insisting on repayment of relatively small debts by temporarily raising the current debt threshold for a winding up petition to £10,000 or more.
  • Require creditors to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action.

The new measures will only apply to small businesses, however. This includes high street firms and those “hit hardest during the pandemic”, such as the hospitality and leisure sector.

Commenting on the measures, Business Minister Lord Callanan said: “The success of our vaccine rollout means we are seeing life and the economy returning to normal with a strong rebound, and the time is right to lift the insolvency restrictions that were needed during the pandemic.

“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures protections will help them to do that.”

According to a recent survey, eight in 10 small and medium-sized enterprises (SMEs) say their revenue had declined during the pandemic, while one in four are concerned about defaulting on loans. A similar number doubt their ability to sustain their supply chains.

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