Key insolvency measures
Creditors will be able to issue Winding up Petitions against individual corporate debtors owing more than £10,000 from next month, even where debt may be “Covid related”. Commercial rent arrears are still excluded.
The Government has announced that measures put in place to protect business from insolvency during lockdown and the pandemic are to be phased out from 1 October 2021.
The Corporate Insolvency Governance Act 2020 was brought into force in June 2020 to prevent creditors from issuing winding up petitions and enforce insolvency.
Updated legislation will:
- See the debt threshold for a winding up petition be raised to £10,000 or more
- Require creditors to seek proposals for payments from a debtor business and allow 21 days for a response before proceeding with a winding up petition.
These measures will be in force until 31 March 2022, when it is expected that legislation will return to pre-pandemic measures.
What this means for businesses
Those will smaller debts will have more time to rebuild balance sheets and reserves ahead of the March 2022 deadline.
Those with larger debts, should be aware that the threat of the business being wound up (which has been very much in the background for many months) will now be an important consideration in the viability of the business going forward.
Directors should be looking at all options including; restructuring, refinancing and negotiations with creditors to avoid facing winding up petitions next month.
What this means for creditors
Creditors should consider the options available to them, where they have corporate debtors owing £10,000.00 or more. Where the debt cannot said to be legitimately disputed, businesses can again look to the demand and petition route as a means of enforcement.
We are expecting to see many of our creditor clients use this procedure straightaway, particularly against those debtors who are considered to be zombie companies or those who have not engaged or co-operated with them over the last year.
For debts less than the £10,000 threshold, creditors should continue negations with debtors and recover what they can through the courts or mediation.
What this means for landlords
For landlords there is no change to the legislation and tenants maintain protection from eviction until 31 March 2022.
Businesses should pay contractual rents where they are able to do so. However, the existing restrictions will remain on commercial landlords from presenting winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.
Full details of when and how the Government’s rent arbitration scheme will come into force are still to be confirmed.
For support with matters relating to restructuring, contact Andrew.Taylor@shma.co.uk
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Andrew works with companies, insolvency practitioners and lenders on restructuring and turnaround options.
He also advises on formal insolvency issues including the sales of assets and undertakings, validity of security/appointment, asset realisations, director’s conduct and antecedent transactions.