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The End of Protection from Insolvency Pressure is in Sight… For Some.

The End of Protection from Insolvency Pressure is in Sight… For Some.

The Insolvency Service has announced that the temporary insolvency protection measures, specifically the restriction on liquidation petitions and statutory demands for payment, introduced to protect businesses from insolvency during the COVID-19 pandemic are to be phased out from the end of this month and new target measures to support small businesses will be introduced.

What temporary measures are currently in place?

The temporary measures were introduced under the Corporate Insolvency and Governance Act 2020 and have been in place since June 2020.

Some measures, including a temporary suspension of wrongful training provisions against company directors and a relaxation of meetings and filings requirements, have already been lifted.

However, restrictions on creditors’ ability to issue statutory demands and then apply for the liquidation of a debtor company are still in place until the end of this month.

The measures were put in place to ensure that viable businesses impacted by lockdowns and government imposed restrictions were not forced into insolvency unnecessarily. Whilst the temporary measures have helped many businesses survive the pandemic, many fear a wave of corporate insolvencies once they are lifted.

How are the temporary measures being phased out?

The restriction on creditor actions will be lifted on 1 October 2021, with the exception of winding up petitions regarding commercial rent arrears.

The restrictions on winding up petitions will remain on commercial landlords presenting a winding up petition against a limited company to repay commercial rent arrears built up during the pandemic. Commercial tenants will continue to receive protection from eviction until 31 March 2022. The government intends to introduce a rent arbitration scheme to deal with the accumulation of commercial rent arrears during the pandemic.

In addition, new targeted measures will be brought in to help smaller companies.

What targeted measures are being introduced?

The Insolvency Service has announced that new measures will be introduced to support smaller companies get back on their feet. It is proposed that the new legislation will:

  • Protect businesses from creditors insisting on repayment of relatively small debts by temporarily raising the current debt threshold for winding up petition to £10,000 or more.
  • Require creditors to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with a winding-up action.

These measures will be in force until 31 March 2022.

Despite the retention of protections for commercial tenants and introduction of targeted protections for small companies, we expect that the phasing out of temporary measures will lead to a sharp rise in corporate insolvencies over the coming months.

It is going to be a very challenging time for companies as the restrictions ease and the business landscape remains uncertain.  Companies still face a variety of challenges other than the impact of Covid going into the winter season.  Many Companies face the reality of an increased debt burden if they have made use of government support during the pandemic, the end of furlough and supply chain and staffing challenges impacting trade, without having any real certainty on what the trading landscape will be in the “new normal”.  Many companies have been able to delay tough decisions thanks to the various government support measures, but the withdrawal will make those decisions much more pressing.

There is still a little time available before the impact of the easing of restrictions will be felt, and we would urge any businesses concerned about creditor pressure or their ability to continue trading to have a discussion with us about all of the options available to support businesses and help directors navigate what will be a challenging time ahead. Time to plan and prepare is key, and if there is time, then there is often a solution which will help rescue the business.

Our team of experienced insolvency and restructuring experts are always happy to have a conversation.

For more information of assistance please contact Pamela Muir, Chris Allan or Anne Miller on 03330 430350