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A liquidation petition is when a creditor (someone who owes money) files an application with the court to close a business
More troubled businesses in Northern Ireland could face insolvency proceedings as courts resume hearings on creditor-led liquidation applications.
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A liquidation petition is when a creditor (someone who owes money) files an application with a court to close down a business.
This is usually because the company has not been able to pay its bills.
In June 2020, new legislation came into effect in England and Wales, protecting businesses in financial distress from actions by creditors.
It gave companies breathing space to look at their accounts and try to find a way forward.
However, it only came into effect in Northern Ireland in March this year and as a result courts have begun to hear petitions of money owed.
Gary Bonner, of accountancy and business consultancy Gildernew & Co, said that now that businesses in Northern Ireland have the same protections as those in the rest of the UK, it has given the courts the reassurance to reintroduce creditor-led liquidation applications.
But it also means an end to the grace period for struggling companies.
“There are undoubtedly companies that would normally be liquidated at this stage,” he explained.
“In January and February of this year, only two companies had been liquidated in court and it would have been a director-led liquidation.
“In the same pre-Covid period, there were 39 companies that were liquidated in January and February 2020. So we would expect those numbers to start to normalize and get back on the high side.”
‘Less safeguards and protections’
Creditors still need a court order before they can file for liquidation – unless it’s for an unpaid tax bill.
Mr Bonner said HMRC tends to be “the most prolific requesting creditor”.
He added: “I think most of the petitions we’re going to see will be HMRC.
“Getting a court ruling can be a slow process, you have to go to court and the creditor can try to defend that lawsuit.
“It won’t be a vending machine, so the courts won’t see those creditors for a while, but they will see HMRC.”
Baker Tilly Mooney Moore insolvency practitioner Darren Bowman said business owners should look at the flow of cash within their businesses, examine their liabilities and seek expert advice if they are struggling.
“With creditors reclaiming the winding-up request mechanism, there are fewer safeguards and protections before formal insolvency proceedings are initiated,” he said.
That said, there are many rescue and recovery options available, including voluntary company agreements, which are a credible and formal way to get a company back on track while paying back creditors.
The Bankruptcy and Masters Court has issued guidelines that hearings may be delayed, particularly “if petitions are filed in large numbers”.