Covid restrictions update - the end of temporary insolvency measures

Government restrictions on enforcement action against debtors introduced during the Covid pandemic are now being phased out.

So, those with bills to pay who have been able to defer them during the pandemic are going to face pressure now to pay. But it won’t all happen in one go.

Those looking to get paid have been eagerly awaiting the Government taking action. The restrictions are set to end on 30 September 2021.

Up to this point, nobody who was owed money could look to enforce payment by threatening insolvency. There was a Government imposed “moratorium” preventing companies in debt from being put into liquidation (except in some limited circumstances).

That law is being changed and will take effect from 1 October 2021.

However, the restrictions are not being lifted entirely and there are still conditions in place which may provide some protection (and which arguably could be more beneficial to smaller businesses, usually those with fewer than 50 employees, a turn over of around less that £6.5 million and with lower levels of debt) to help businesses get back on their feet following the effects of the pandemic.

Firstly, as someone who is due to be paid you cannot apply to court to liquidate a company for unpaid rent or other sums due under a commercial lease. So, retailers struggling after lockdown will get more breathing room.

This will remain in place until March 2022. After that date, the government has set up a commercial rent arbitration scheme which is supposed to provide a structure to repay commercial rent arrears and protect both the tenant and the landlord in the aftermath of the pandemic.

Secondly, prior to the restrictions if a business owed more than £750, it could be liquidated if it failed to pay. However, the debt will now have to be in excess of £10,000 (and as above it cannot be in relation to commercial rent).

These measures will be in place until March 2022 after which it is expected to return to pre-pandemic rules, but it will be under constant review.

Lastly, if a company fails to make payment of their debts over £10,000, they must be given a period of 21 days to make a proposal to repay the debt to avoid liquidation.

This differs from the pre-pandemic position which allowed a court application for liquidation based only on a letter giving two days to provide repayment proposals. After 21 days has elapsed, if there has been no proposal, the application to court can go ahead.

The new rules appear to be geared towards avoiding a tsunami of business insolvencies, instead giving businesses a chance to rebound to financial health.

Nevertheless, we expect to see a significant uptick in court liquidation applications in the last few months of this year.

Should you have any questions about the above, please get in touch with our team to discuss.