Winding Up Petitions - Back on the menu?

In the midst of the economic crisis wrought by the current covid-19 pandemic, one of the many measures introduced by the government was the temporary suspension of statutory demands and winding up petitions. Like most measures, it was brought in to protect businesses from pandemic-related debts, which they assumed (rightly or wrongly) would be a short-term issue.

However, the memorandum expired on 1st October 2021. So, are we now going to see an increase in insolvency claims and winding up petitions?

It does look likely, Company Watch reported in September than the number of insolvencies in August was 22% higher than in July and that trend was expected to continue. We must also remember that with the suspension of creditor actions, these insolvencies are essentially only those voluntarily entered into. With the economic recovery from the pandemic losses being slower and further down the line than initially hoped way back in March 2020, it does seem likely that any business which has not managed to turn itself around in 18 months and adapt to the economic realities of today will be unlikely to bounce back anytime soon.

Some caveats do remain in place until March 2022, giving those companies on the brink a little extra breathing space before creditors can come calling again. The remaining restrictions include:

• A debt threshold of at least £10,000

• A serving of a notice in the prescribed manner, and

• some debt, such as rent arrears, remains excluded from consideration.

If you're after a more technical look at these remaining caveats, check out this Freshfields article here

In retaining these caveats, the government is clearly hoping a phased re-introduction of creditors actions will allow more companies time to get their affairs in order and stagger the impact of any actions that do go ahead of the courts and, by extension (intentional or not), insurers.

For D&O insurers, the ending of the winding-up memorandum comes as a double whammy, with furlough ending on October 1st as well. It remains to be seen how well insurers, and indeed their client companies, will come out of this next quarter and beyond.