A winding-up petition is a legal notice put by a creditor to the court, asking for a company to be liquidated under the belief that it is insolvent. Proceeds of this liquidation can then be used to reimburse creditors. Creditors have already filed 52 petitions to wind up retail companies this year London law firm RPC has reported.
RPC is now calling for a moratorium on these petitions. The move would give retailers “a much-needed buffer to help them stretch payment deadlines” as they seek to mitigate the impact of coronavirus.
However, it would also be dangerous for creditors, including suppliers, who could be left even further out of pocket.
Finella Fogarty, business restructuring and insolvency partner at RPC, said: “Even if the winding-up petitions aren’t processed, they scare off [other] suppliers and possible funders and can have damaging effects on businesses.”
Debenhams last week appointed advisory firm FRP Advisory as administrators, to protect its UK business from liquidation.
The “light touch” administration, under which the existing management team will remain in place under the control and supervision of administrators, protects Debenhams from winding-up petitions.
However, suppliers in the UK and globally have had orders cancelled or postponed as retailers invoke force majeure clauses as a result of the coronavirus outbreak.
Among those to cancel orders include Arcadia Group, which has since offered to accept transit orders from suppliers at a 30% discount; Primark, which cancelled all new orders; and New Look, which has cancelled all orders and pushed back payment terms “indefinitely”.