The Government’s New Regulations On Winding Up Petitions To Support Businesses Impacted By Covid-19 While Returning Back To The Pre-Pandemic Norm

The Amendment of Schedule 10 Regulations 2021 to the Corporate Insolvency and Governance Act 2020 is set to ease the restrictions over winding up petitions against a corporate debtor, taking effect on 1 October 2021 and set to last until 31 March 2022.

As a result of the Covid-19 pandemic, the Corporate Insolvency and Governance Act 2020 was put in place to restrict a creditor’s ability to present a statutory demand and winding up petition against a corporate debtor providing much-needed leeway for struggling businesses against the threat of winding up petitions.

Now, from 1 October 2021, those temporary restrictions – which were set to expire on 30 September 2021 – are being amended with new temporary regulations that are set to last until 31 March 2022. These regulations mean that a creditor may not present a petition for winding up unless the 4 conditions below are met:

Condition A is that the creditor is owed a debt by the company whose amount is liquidated, which has fallen due for payment, and which is not an excluded debt;

Condition B is that the debtor has been given written notice of the debt and an opportunity to provide repayment proposals for that debt;

Condition C is that at end of the period of 21 days, beginning with the day on which Condition B was met, the company has not made a proposal for the payment of the debt that is to the creditor’s satisfaction;

Condition D is that the debt is over £10,000.

In addition to these conditions, if the debtor makes proposals for payment after a creditor seeks a winding up order, the creditor must then give the court its reasons why the debtor’s proposals were unsatisfactory. The court will then review these reasons to conclude whether it can exercise its discretion to wind up a company.

Nevertheless, for commercial rent arrears built up during the pandemic, commercial landlords continue to be prevented from presenting winding up petitions onto them unless they can show that the reason for non-payment is unrelated to the pandemic.

The Schedule 10 Regulations are a reaction to the easing of pandemic restrictions with the winding up process slowly returning to its normal pre-pandemic order while continuing to support businesses still suffering from the economic fallout from the pandemic.

As well as this, these amendments are set to work alongside the proposed legislation in relation to the recently announced rent arbitration scheme. This scheme is set to apply to commercial tenants who have been affected by Covid-19 business closures and is set to encourage consensual agreement rather than continual court proceedings.

© Whitestone Chambers

Whitestone Looks at Consumer Law Reform

Following numerous consultations, the UK Government plans to reform consumer law. These plans consist of giving regulators powers to impose fines of up to 10% of global turnover in the case of a breach of consumer legislations. Such reform – if actioned – is predicted to ‘toughen’ the regulatory environment in the consumer business sector.[1]

Problems lie upon whether all this talk of reform will be actioned, or whether weak enforcement from the consumer and sectoral regulators will leave this reform redundant. If a regulating authority, such as the Competition and Markets Authority (CMA) or the Financial Conduct Authority (FCA) believe a business to be infringing consumer law, they have no powers to compel the business to change its behaviour – such authorities can merely advise, and hope that businesses choose to act in accordance.

Despite courts withholding the power to order businesses to make such changes, the process of taking businesses to court is “lengthy, complex and costly” with no financial sanctions for civil breaches of consumer protection law, even if the business loses the case as seen in 2008 where the Office of Fair Trading took estate agent Foxtons to court over unfair provisions in its agreements with consumer landlords.[2] Currently, the CMA also has to go to court if it considers a business to have failed to comply with its investigatory powers under consumer law.[3]

These detrimental inconveniences have ultimately left regulators not wanting to take businesses to court, but instead attempting to negotiate a settlement with businesses. Such settlements, however, are not directly enforceable. In these circumstances, the regulators have no other option but to bring court proceedings against breaching businesses, leaving them at a major setback.

Notwithstanding these issues, the proposed reform promises to correlate with the powers of the CMA and other regulators in order to enforce the law in this area. Rather than having to go to court, regulators will have the powers to investigate and reach their own decision which will be immediately binding on the business in question, including an order to cease the illegal behaviour or a monetary penalty of up to 10% of the businesses global turnover to not only punish offenders but deter other businesses from engaging in such conduct. Furthermore, if the regulator believe that a business has failed to cooperate or provide sufficient information whilst under investigation, it will be entitled to impose a civil penalty of up to 1% of annual turnover, with an additional daily penalty of up to 5% of daily turnover in the case of continued non-compliance. Businesses can, nonetheless, appeal against such decisions by regulators.

These reforms will remove the necessity of court proceedings against breaching businesses by strengthening the power of the regulators, provided the Government legislates to implement this new regime.

When these reforms will ultimately come into force is unknown, though the deadline for responding to the consultation is 1 October 2021, preceding Government analysis of – and response to – any feedback and finding Parliamentary time for legislation to enact the reforms. Realistically, we think that the earliest the reform will be brought into force would now be 2023.