The government is to end the temporary insolvency restrictions introduced to protect firms during the pandemic and instead has launched new targeted measures to support small businesses and commercial tenants.
The temporary measures will be phased out from 1 October and these meant that creditors could not take winding up action against businesses that owed them money. The measures were introduced in June last year through the Corporate Insolvency and Governance Act 2020.
They were to make sure that viable businesses, which were negatively impacted by the restrictions on trading during the lockdowns, were not unfairly forced into insolvency. As the UK economy is now largely reopened for business, the government is once again allowing some creditor actions to restart. However, this will only apply where larger debts in excess of £10,000, as an individual amount, exist.
New measures launched to help companies
There will now be new measures that will be available, in particular, to help smaller companies continue their recovery. A government statement said these would particularly help high streets, the hospitality and leisure sectors, which were hit hardest during the pandemic. The new legislation will be in force until 31 March 2022 and will:
- Protect businesses from creditors insisting on repayment of relatively small debts by temporarily raising the current debt threshold for a 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 winding up action.
Business minister Lord Callanan said: “The success of our vaccine rollout means we are seeing life and the economy returning to normal with a strong rebound, and the time is right to lift the insolvency restrictions that were needed during the pandemic.
“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures will help them to do that.”
He added that businesses should pay contractual rents where they are able to do so. But, the existing restrictions will remain on commercial landlords from presenting winding-up petitions against limited companies to repay commercial rent arrears built up during the pandemic.
The government said continuing the restriction on winding up, in respect of commercial rent only, supported the announcement – made on 16 June – that commercial tenants will continue to be protected from eviction until 31 March 2022. This is while the government implements a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic.
The new measures will be introduced through a Statutory Instrument and will cover England, Scotland, and Wales. Northern Ireland will also implement similar legislation.
Simon Renshaw, director with Company Debt, comments: “Many businesses will have been aware that the restrictions on creditor action were due to end. However, this new threshold for the debt to be £10,000 before a winding-up petition can be made, will still afford businesses some protection as it’s a significant increase on the previous limit of £750.
“Businesses that owe creditors large amounts, so where they are individually over £10,000, will have benefited from some respite because of the Covid-19 protections. This period is now over and they should seek advice, as soon as possible, if they are unable to settle their debts. They may be able to reach an agreement with creditors and continue trading, rather than face the prospect of compulsory liquidation which will now again be permitted.”