It can be argued that by restricting the filing of statutory demands and winding up petitions for Covid-19-realted debts, the Government has targeted all industry sectors with a blunt instrument.

Covid-19 did not adversely affect every business in Britain. Indeed, many continued to operate throughout the lockdown period, and some of them thrived.

We need to be careful because any business can avoid paying debts simply by claiming to have been affected by the pandemic, which is not easy to disprove.

The restrictions on statutory demands and winding-up petitions end on 30 September. This should provide creditors with more than enough time to organise their finances.

However, Parliament has the right to extend this provision of the new Corporate Insolvency and Governance Act. This would be an obvious mistake and only encourage businesses to stop paying each other, which would be disastrous.

Greater burden on taxpayers

Any additional strain on already fragile economy would surely lead to an increase in company collapses and unemployment. In turn, this would place a greater burden on the Exchequer, and ultimately taxpayers.

There is a ripple effect when a company goes bust, so the primary objective is to stop them from collapsing. Unemployment fractures households because parents can no longer afford necessities and other things for their children.

Additionally, the small businesses that rely on that household suffer too. There is a perfect storm brewing and it is just a matter of time before small businesses start going under.

While there is logic in the Government’s decision to limit the enforcement of statutory demands and winding-up petitions, the danger is in leaving the restriction in place for too long, which would be counterproductive.

The post Why statutory demands and petitions are essential first appeared on Company Debt Recovery.

The Government’s decision to suspend the filing of Statutory Demands and Winding-up Petitions is a huge blow for creditors seeking to collect payment of outstanding debts.

As a result of the Corporate Insolvency and Governance Act, a creditor’s only debt enforcement remedies are through the county court via either a bailiff or a third-party debt order.

In response, a wisely-advised debtor can easily defend the claim and keep the action going for 12 to 18 months.

Although temporary, these measures could be extended further if the economic fallot from Covid-19 is worse than previously determined.

No single creditor should unduly benefit from a winding-up petition. But there are grey areas and so abuse exists.

For example, before the Covid-19 pandemic, some creditors would covertly use a winding-up petition as a debt recovery tool. They would say: 

“I issued a winding-up petition because I wanted to have the company wound up, not for debt collection purposes. But the directors claim the company is solvent. They resisted the petition and paid what they owed me. So now the petition serves no purpose.”

Bar set high

As it stands, the type of abuse described above will reduce considrebly because the bar has been set high for individuals issuing winding-up petitions.

To be successful, the petitioner must now prove the company:

• Is insolvent
• Was doomed to fail irrespective of Covid-19 (which is only practical for petitions relating to debts incurred in before 2020).

However, thanks to the new Bill, it is perfectly acceptable and credible for the defending company to respond by saying:

“We’d planned to pay you in May 2020 from the proceeds of a payment one of my customers was due to make. But they haven’t paid because they’ve been affected by Covid-19, which is why I’m unable to pay you.”

For creditors hoping to recover their losses quickly, the new legislation is completely useless and will ultimately lead to an increase in cowboy traders as the commercial environment degenerates into a chaotic frontier similar to the Wild West. 

It’s unclear exactly how long the provisions will remain in place, but they need to be lifted quickly. Once a debtor business stops paying its creditors, they become unable to pay their creditors.

This creates a catastrophic domino effect and business owners will eventually stop paying each other because the Government has given them all a valid and legitimate reason not to pay. A debtor company simply needs to tell its creditors:

‘We are unable to pay you because we have been affected (either directly or indirectly) by Covid-19.”

The post Stat demands and winding-up petitions post Covid-19 first appeared on Company Debt Recovery.