The Insolvency Service has today announced that the temporary emergency measures which were implemented in June 2020 to protect businesses from insolvency during the COVID-19 pandemic are to be phased out from 1 October 2021.

The Corporate Insolvency and Governance Act 2020 created a moratorium on creditor enforcement action against debtor companies by restricting the presentation of winding up petitions. This sought to give struggling companies protection from creditors and prevent widespread insolvencies as a result of the economic disruption the pandemic has caused. The primary objective was to protect viable businesses from unnecessary insolvency – however a natural and foreseeable consequence of these protections has been the sustenance of unviable zombies.

It was inevitable, given the relaxation of wider restrictions, that at some stage the UK Government had to enable creditor action against debtor companies to return in order to maintain the balance of our financial ecosystem.

What’s new?

The headline news is that from 1 October 2021 creditors will once again be able to initiate winding up action against debtor companies. This is caveated by new legislative requirements that will:

1. 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.
2. 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.

These measures will remain in force until 31 March 2021.

The debt threshold increase from £750 to £10,000 aims to protect smaller companies from creditor enforcement of small debts, to give them an opportunity to recover from the pandemic.

For Landlords

The existing restrictions on landlords presenting winding up petitions against limited companies based on commercial rent arrears build up during the pandemic will continue despite the above changes. This is part of a wider scheme to protect tenants and follows the announcement on 16 June 2021 that commercial tenants will continue to be shielded from eviction until 31 March 22 during which the Government will implement a rent arbitration scheme.

Summary

These changes will be widely welcomed by creditors, many of whom have been unable to recover debts due during the pandemic. Directors, on the other hand, will now have to seriously consider the financial position of their company.

It is prudent to seek professional advice, whether seeking repayment of a debt or facing pressure from creditors. Please contact a member of our Insolvency Team to discuss any concerns or problems you may be facing.