The pandemic effect on creditor petitions

Building suppliers

Following our article covering insolvencies within the construction sector, Home Office statistics by the UK Government have revealed that building suppliers have issued 28 percent of all winding-up petitions filed since February 2020.

Troubled construction companies often fail to pay money they owe to builders' merchants. Clients' late payment of their bills is an endemic problem in the sector.

This problem of late payments has only increased as the cost of building materials has soared, and the lockdown delayed the completion of many building projects.

Michael Pallott, a partner in our Restructuring and Insolvency practice, states: "Builder merchants have always had to deal with the cash flow issues that their clients face, but the pandemic worsened these significantly. Having to put customers into insolvency to get paid has become worryingly common for them."

Other creditor petitions

Other parties that made up a significant percentage of creditor petitions were energy suppliers (9% of all petitions to wind up businesses) and commercial finance providers, including banks (8%).  

The sharp rise in energy prices is likely to blame for the high number of winding-up petitions issued by energy suppliers, as these have hit many energy-intensive businesses hard.

The Insolvency Service, partly responsible for closing businesses they suspect are acting against the public interest, made up 13% of winding-up petitions to close a business.

HMRC, usually the biggest filer of winding-up petitions, has filed just 7% of petitions since the start of the pandemic. The number of restrictions placed upon issuing wind-up notices during the pandemic has increased. These included a ban on creditors filing winding-up petitions unless they could prove that the non-payment of the debt was not Covid 19-related.

In usual times, HMRC makes up around three-quarters of all petitioning creditors. This number will likely begin to rise again now that the burden on winding up petitions has been lowered and any remaining temporary hurdles are removed in March 2022. It has been noted that HMRC has begun to issue an increased number of winding-up petitions over the last three months.

Michael Pallott continues: "HMRC is now broadly free to try to wind up businesses that owe unpaid tax of more than £10,000. Even so, it is likely that the tax authority will continue to tread lightly and not file a winding-up petition unless the business refuses to come to a sensible arrangement to repay its debts."

Other creditors petitioning to close businesses that owe them money include local authorities (4% of all petitions), shipping companies, and debt recovery agencies (3%).

Creditor Petitions by Sector (Feb 2020 - Oct 2021)

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