With the vaccine rollout well underway, the COVID19 pandemic looks to be entering its final stages.  As a consequence of this, COVID19-specific relief measures are being withdrawn.  They are being replaced by targeted (and hence smaller-scale measures).  The latest change is to the temporary insolvency measures.  Here is what you need to know.

The introduction of temporary insolvency measures

In June 2020, Royal Assent was granted to The Corporate Insolvency and Governance Act 2020.  This protected business from being forced into insolvency as a result of the restrictions caused by the Coronavirus.  Now, while restrictions are ongoing, they are much less severe.  Certainly, the majority of businesses are now operating more or less as normal.

This means that there is less justification for blanked protection against insolvency proceedings.  At the same time, however, the UK still has some way to go before it is really in the clear.  This is why The Corporate Insolvency and Governance Act 2020 has been updated rather than entirely revoked.  It is now The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021.

The updated measures

From 1st October to 31st March (2022), the debt threshold for a winding-up petition will be a minimum of £10K.  Creditors will be mandated to seek proposals for payment from a debtor business.  The business must be allowed 21 days to respond before the creditor can proceed with winding up action.

Debts relating specifically to commercial rent arrears built up during the pandemic will remain under the existing restrictions.  In other words, commercial landlords will be prevented from presenting winding up petitions on the grounds of non-payment of rent during the pandemic.

Commercial tenants remain protected from eviction.  This protection is scheduled to last until 31st March (2022).  The government intends to use the intervening time to implement a rent arbitration scheme.  This scheme will be used to find a reasonable way to deal with pandemic-related debts.

What does this mean for creditors?

The new rules do open the door for creditors to take legal action when they were previously unable to do so.  As always, however, the fact that you can do something doesn’t mean that you should.  If you are dealing with a company that has been deliberately exploiting the rules, then the update may encourage them to clean up their act.

These companies are, however, likely to be in the minority.  If you are dealing with a company that simply needs time to get on its feet, then cooperation may be your better route.  It’s usually less hassle than legal action.  That’s likely to be even truer than usual over the immediate future as courts work their way through a backlog of cases.

What does this mean for debtors?

Arguably this change simply means that all debtors need to start thinking about a path forward.  Some will need to start thinking more quickly than others.  At the end of the day, however, the pandemic is going to come to an end.  That means the protective measures relating to it are going to come to an end too.  Businesses need to prepare for this.

If you’re running a business then, in very blunt terms, you need to decide if you can (and want to) keep going.  If you do, then you need to come up with a path forward.  Once you have that, you may want to consider reaching out to your creditors and trying to negotiate a settlement.

Even though you’re the debtor, your hand may still be fairly strong.  Apart from anything else, if your creditors do submit a winding-up petition, they are likely to have a long wait for court time.  They may therefore see it as very much in their best interests just to come to a reasonable agreement out of court.

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