Restrictions on statutory demands and winding up petitions now extended to the end of September 2021
On 16 June 2021, the UK Government, in a further extension of temporary insolvency measures, announced that “restrictions on statutory demands and winding up petitions will remain for a further three months until 30 September 2021 to protect companies from creditor enforcement action where their debts relate to the pandemic.”
These measures were initially introduced in the Corporate Insolvency and Government Act in March 2020 and have already been extended several times. The intention is to give businesses continued breathing space as the economy steadily reopens. The measures include protecting businesses from aggressive creditor enforcement and removing personal liability on company directors, and the extension to 30th September 2021 prompted the Minister for Corporate Responsibility, Lord Callanan to say:
“With the threat of aggressive creditor action and insolvency eased, companies will be able to focus all their efforts on their recovery.”
The Government also announced that current restrictions on commercial evictions for rent arrears is to be extended until 25 March 2022. It appears the intention here is to ringfence commercial rent arrears (Covid-19 related) and guide tenants and landlords to reach acceptable repayment plans. If an agreement cannot be made, a binding arbitration process is likely to be the next step with a view to reaching a formal agreement.
These measures are welcome, but will they be enough?
The Road to Recovery will be long and hard for many businesses
At the very beginning of the pandemic, in March 2020, our Managing Director and Senior Partner, Antony Batty pointed out that:
“Our Insolvency Practitioners and business turnaround specialists have been talking to many Companies, across a range of sectors whose business has disappeared over night because of the Coronavirus Pandemic, yet until a couple of weeks ago these were successful Companies which were profitable and many were growing. Now they face overhead bills but no income.”
Now, 15 months or more later, we can confidently say that the full range of the Government’s business support measures have been effective in preventing a surge in insolvencies. However, the evidence is that many thousands of businesses are deep in financial trouble, especially those in the pub, restaurant, travel and entertainment sectors, and that as support is wound down, insolvency will loom, as the revenue they have lost proves to be too big a hole to plug. For example, the fact that 20% of borrowers are asking for more time to pay back their Bounce Back Loans – a figure that equates to c.300,000 businesses, tells its own story.
As Christina Fitzgerald, Vice President of the insolvency and restructuring trade body, R3, has commented, the extension of these measures might prove to be the final breathing space businesses will get:
“While the extension of these measures will benefit many companies, as time goes on the Government will need to consider the impact on creditors – who have staff and overheads to pay themselves. Balancing these interests is a difficult task for the Government.”
“However, today’s decision also gives directors and business owners a further – and possibly final – window to plan how they will take their businesses forward when these temporary measures end.”
It also remains to be seen if/when the Government will extend the current suspension of liability for Wrongful Trading beyond the current deadline of 30th June 2021.
What can Affected Businesses do?
The real concern is that extensions in support are not long-term solutions, and as the phrase goes, the can cannot continue to be kicked down the road indefinitely. At some stage, the various types of support will end and that could see an aggressive response from creditors as they try to recover the debts they are owed.
As Christina Fitzgerald comments:
“We urge businesses to use this time to seek advice from a qualified professional – and to do so as early as possible, so they can benefit from the broadest range of options available and have a greater time period to decide how they will move forward.”
In over 40% of cases, when an insolvency practitioner is appointed, formal liquidations are avoided, with recovery process such as Administrations and Company Voluntary Arrangements proving effective. The worst thing that can be done is to do nothing. So, if you are concerned about the financial position of your company and are facing insolvency, please contact us or call one of our offices fopr a FREE initial discussion:
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