Temporary insolvency restrictions

Temporary insolvency restrictions

Some of the measures which were brought in to support companies which may have been facing insolvency due to the Covid crisis are due to expire at the end of September 2021. Introduced via the Corporate Governance and Insolvency Act 2020, these measures include the voiding of statutory demands served on a company between 1 March 2020 and 30 September 2021, alongside a restriction on winding-up petitions where the debt is due to Covid-19. Measures to  suspend wrongful trading rules expired on 30 June 2021.

Recognising that recovery from Covid strictures may take some time, the Government is taking action to provide a further period of support, for Covid-affected businesses. In June they announced that action would be taken to ring-fence unpaid rent which had built up as a result of a business having to remain closed due to Covid restrictions; with existing measures in place to protect commercial tenants from eviction also being extended to 25 March 2022. This legislation was supported by a voluntary code of practice for commercial landlords and tenants alongside the setting up of a rent arbitration scheme.

The latest measures announced in September 2021 include the temporary increase of the debt threshold for a winding up petition to £10,000. Legislation will also require creditors to give a debtor business twenty one days to respond to a request for repayment proposals before winding up action can be taken. These measures, which will apply to England, Scotland and Wales, are due to expire on 31 March 2022. Northern Ireland is to bring forward similar legislation.

Commenting on the new measures 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 protections will help them to do that.”

Directors need to be aware of the new legislation and to ensure compliance. For many businesses the current trading climate brings a measure of uncertainty. Recognition of risk and actions taken to mitigate potential impacts on the business should be reflected both in boardroom decisions and in communications to shareholders.

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