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Reintroduction of Winding Up Petitions ‘Will Add to Pressure on Struggling Firms’

By Jon Munnery
26 May 2021

The lifting of the ban on winding up petitions in the UK will add notably to the financial pressures being faced by struggling firms across the country.

A temporary ban on winding up petitions has been in place throughout the Covid-19 crisis but is scheduled to be lifted from the end of June.

The ban has effectively protected large numbers of companies from the potential legal consequences of being insolvent.

It is unclear quite how many businesses across the country might soon be pursued again through the courts by their creditors but some experts are expecting a wave of corporate insolvencies in the coming months and an increase in liquidations.

With other aspects of government support being scaled back over the summer months, it’s anticipated that the reintroduction of winding up petitions will have a big impact on the rate at which British companies are entering insolvency and liquidation in the second half of the year.

Christina Fitzgerald, vice president of the insolvency and restructuring trade body R3, has said that the ending of the winding up petitions ban will “clearly increase pressure on financially struggling firms”.

“Government has a challenge on its hands in terms of managing the exit from lockdown and the withdrawal of its financial support measures,” she added.

“How it handles this will help to determine if there is a sharp spike of business failures or simply a smoother return to pre-pandemic insolvency levels.”

Along with representatives of the Institute of Directors (IoD), R3 recently wrote to the government encouraging decision makers in Westminster to ensure that HMRC takes a balanced approach to pursuing its debts in the coming months.

Explaining the reasoning behind that request, Roger Baker from the IoD said: “The ability of companies to negotiate with their creditors will depend on the HMRC’s position - if the HMRC demands its cash back immediately then other creditors are less likely to agree to terms to keep the business going.

“HMRC have placed themselves at the top of the pecking order - and with that position comes responsibility given decisions will have a ripple effect across jobs and other related suppliers and customers.”

Jonathan Munnery
Partner
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