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What happens to my winding up petition during coronavirus lockdown?

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Updated: 18th May 2020

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 happens to a winding up petition during the coronavirus lockdown?

The government has brought in a range of emergency measures to help businesses deal with extreme levels of financial distress and creditor pressure during the coronavirus lockdown - a fluid situation that continues to evolve.

At the time of writing, new legislation has been passed to protect commercial tenants in the retail sector from legal action and eviction by their landlords, and it’s expected that a general moratorium to protect other businesses may also be introduced.

Commercial landlords are unable to present a winding up petition against a tenant (currently this is between 27th April and 30th June 2020) if the tenant business can prove they’re unable to make rent payments as a result of the coronavirus crisis.

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.

So how might this be proven? 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.

If a general moratorium is introduced, it’s unclear as yet whether businesses could use it in relation to existing winding up petitions already in the system, or only for new petitions from the date the moratorium starts.

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, our partner-led team at Real Business Rescue can help. We’re insolvency specialists and will provide tailored advice on this and other coronavirus related business issues. Please contact one of the team to arrange a free same-day consultation.

Keith Tully

Partner

0800 644 6080

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