More Northern Ireland businesses could face insolvency proceedings

A winding-up petition is when a creditor (someone who is owed money) applies to court to close down a company

More struggling businesses in Northern Ireland could face insolvency proceedings as courts restart hearings of creditor led winding-up petitions.

The action was suspended during the Covid-19 pandemic but was reinstated this week.

A winding-up petition is when a creditor (someone who is owed money) applies to a court to close down a company.

Usually that is because the business has not been able to pay its bills.

In June 2020, new legislation came into effect in England and Wales which meant companies in financial distress were protected from creditor action.

It gave companies breathing space to look at their accounts and try to figure out a way forward.

However, it did not come into effect in Northern Ireland until March this year and, as a result, courts have begun hearing petitions from those owed money.

Gary Bonner, from accountancy and business consultancy firm Gildernew & Co, said now companies in Northern Ireland have the same protection as those in the rest of the UK, it has given courts the reassurance to reintroduce creditor-led winding up petitions.

But it also means an end to the grace period for struggling businesses.

"There are undoubtedly companies out there who normally would be wound up at this stage," he explained.

"In January and February this year there were only two companies wound up in court and they would've been director-led winding ups.

"In the same period pre-Covid there were 39 companies wound up in January and February 2020. So we would expect those numbers to start normalising and coming back up to the high end."

'Fewer safeguards and protections'

Creditors still need a court judgement before they apply for a winding up petition - unless it is about an unpaid tax bill.

Mr Bonner said HMRC tends to be "the most prolific petitioning creditor".

He added: "I think most of the petitions that we're going to see are going to be HMRC.

"Getting a court judgement can be a slow process, you're having to go to court, and the creditor may try to defend that court process.

"It won't be an automatic, so the courts will not be seeing those creditors for a while but they will be seeing HMRC."

Insolvency practitioner Darren Bowman, of Baker Tilly Mooney Moore, said business owners should look at the flow of cash within their business, investigate their liabilities and seek expert advice if they are struggling.

"As creditors reclaim the mechanism of winding-up petitions, there are fewer safeguards and protections in place before the initiation of formal insolvency proceedings," he said.

"That said, many rescue and recovery options are available including Company Voluntary Arrangements, which are a credible and formal way to getting a business back on track while repaying creditors.

The Bankruptcy and Masters court has issued guidance that hearings could face delays, especially "if petitions are presented in significant numbers".