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Temporary insolvency protection phased out

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The government is phasing out temporary insolvency measures for companies in financial distress due to the pandemic.
The government is phasing out temporary insolvency measures for companies in financial distress due to the pandemic.

Since June 2020, companies in financial distress due to the pandemic have been protected from creditor action by the UK government’s temporary insolvency measures. Now, as the economic landscape gets back to normal, the government has announced a phasing out of these measures from October 1.

Return to ‘normal’

The Corporate Insolvency and Governance Act 2020 was introduced to protect viable businesses adversely impacted by lockdown-related restrictions from unnecessary insolvency. It stopped commercial landlords using winding-up petitions to pursue commercial rent arrears, unless a creditor could prove that the pandemic had no impact on a debtor’s ability to pay its debt.

Fifteen months later, the government has announced that it will lift the temporary measures because the economy is returning to ‘normal trading conditions.’ Business minister Lord Callanan commented: “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.”

Protections still in place

Although the exceptional measures may be coming to an end, this does not mean that commercial tenants will suddenly find themselves without protection. Notably, the £10,000 winding-up order minimum limit will continue until March 31, 2022. This means that creditors can only pursue unpaid debts of £10,000 or more, compared to the pre-pandemic limit of £750. This higher limit will protect businesses from creditors insisting on repayment of relatively small debts.

Furthermore, creditors will be required to seek proposals for payment from a debtor business and give debtors 21 days for a response before they proceed with any winding-up action. The existing restrictions will also remain on commercial landlords, from presenting winding-up petitions against limited companies to repay commercial rent arrears built up during the pandemic.

Lord Callanan emphasised the need for a gradual withdrawal of the temporary measures. He added: “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 and protections will help them to do that.”

Frustration for commercial landlords

Some commercial landlords, however, are frustrated with the timeline for phasing out temporary measures. The original Bill aimed to ‘give companies breathing space from their creditors while they seek a rescue,’ stressing that these were ‘urgent measures required to respond to the Covid-19 emergency.’

Yet it has often been hard to determine to what extent the pandemic has impacted on a debtor’s ability to pay its debt. And some in the sector believe businesses have been abusing the insolvency measures. Melanie Leech, chief executive of the British Property Federation, said: “With every day that passes, the injustice of fettering property owners’ ability to tackle the abuse of the moratoriums by well-capitalised businesses that can afford to pay rent grows.”

The government states that “businesses should pay contractual rents where they are able to do so” and insists that the new measures will benefit high streets, and the hospitality and leisure sectors, which have been among the hardest hit during the pandemic.

Here to advise

Whether you are a commercial landlord or tenant, it is important to understand how these changes might affect your rights and responsibilities. If you are owed money by a debtor or threatened with a winding-up order by a creditor, we can help you find a resolution. Contact us on 0344 967 2505 or get in touch with a member of our team at woodfines.co.uk.

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