Government announces that temporary insolvency restrictions will end in October

New targeted measures to support small businesses and commercial tenants also introduced.

The Government, through the Insolvency Service, has recently announced that the Insolvency measures it brought in through the Corporate Insolvency and Governance Act 2020 will be phased out from 1st October 2021. These measures have supported and protected companies in financial distress due to Covid-19 from winding up petitions brought by creditors since June 2020. The aim of the measures was to ensure that viable businesses were not forced into insolvency unnecessarily having been badly affected by the lockdown restrictions through no fault of their own.

In this article we look at what the possible outcome could be for struggling businesses because of the lifting of these temporary insolvency measures. It is worth noting that some new measures have been announced that will help smaller companies by giving them time to trade their way back to financial health before creditors can take winding up action. But first, our managing director, insolvency practitioner Antony Batty, looks back at an article he wrote in November 2020, which looked at how well companies were weathering the Covid storm.

A soft landing or a heavy landing for companies?

“It was always a matter of time before Covid support packages would end and temporary insolvency restrictions would be lifted. Back in November 2020, I wrote that:

‘The immediate question is how much longer the Government’s support will last and how quickly will it want to plug the huge hole it has created in the public finances? This is both a political and an economic/financial/welfare question and it probably all depends on the effectiveness and efficacy of the vaccines that look as though they are coming on stream soon.

This is then followed up by the really important question for companies, which is how many will be facing insolvency when the Government’s support is phased out?

Anecdotally, we hear that many thousands of companies are right on the edge. So, let us hope that most of the Company life rafts land softly on dry land at some future date and that the Government keep pumping in the air! Only time will tell how many gently deflate or burst along the way because of a heavy landing.’

“In January 2021, I commented on a Federation of Small Business report that 250,000 small businesses could close in 2021. It remains to be seen, of course, what happens, and how heavy the landing is for financially challenged companies. It does seem, however that there is increasing pressure from creditors to issue winding up petitions across a wide range of business and industry sectors sectors and, as a result, we are expecting a significant increase in insolvencies in the coming months.”

New Legislation to support small businesses

The UK can ill afford insolvencies on such a significant scale, so it is positive news that the new legislation will temporarily increase the current debt threshold for winding up a company from £750 to £10,000. In addition, creditors will be required to seek payment proposals from a business and must allow debtors 21 days to respond before a creditor is able to commence winding up proceedings.  These measures are planned to be in force until 31 March 2022.

One significant exception to the legislation relates to commercial property where the current restrictions remain in place. A landlord is unable to commence winding up proceedings against a limited company to repay arrears accrued during the pandemic.

What can an Insolvency Practitioner do to help?

We are not just here for the compulsory and unavoidable liquidations. We’re also here to help companies in financial difficulties to recover and turn things around, whether that is through restructuring and refinancing or through an insolvency procedure such as an Administration or a Company Voluntary Arrangement which can deliver the breathing space that companies need to get back on the road to recovery. Click here to see what we had to say at the beginning of the first lockdown in March 2020.

Our advice is that if you know that the underlying position of your company is weak, then act now! The sooner you get in touch with an Insolvency Practitioner, such as Antony Batty & Company, the sooner we can recommend a solution. We will talk you through all the options available, so that you know exactly where you are, helping you to make the best possible decisions. The first discussion is free.

In the meantime, if you need our help and advice in any of our specialist insolvency areas, please contact us or call any of our offices, below, for a FREE initial discussion on the ‘phone or over a coffee.

Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley: