Phasing out of temporary insolvency protection

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Sponsored article | Sean Fitzgerald, Woodfines Lawyers

Sean Fitzgerald, Woodfines attorneys (52303136)

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

Back to normal’

The Insolvency and Corporate Governance Act 2020 was introduced to protect viable businesses affected by foreclosure restrictions from unnecessary insolvency. It has prevented business owners from using liquidation petitions to pursue arrears of commercial rents, unless a creditor can prove that the pandemic has had no impact on a debtor’s ability to pay its debt. .

Fifteen months later, the government announced that it would lift the temporary measures as the economy returns to “normal trading conditions”. Business Minister Lord Callanan commented: ‘The success of our vaccine deployment means that we are seeing life and the economy return to normal with a strong rebound, and the time has come to lift the insolvency restrictions. that were needed during the pandemic. “

Protections always in place

Even though the exceptional measures may be coming to an end, that does not mean that commercial tenants will suddenly find themselves without protection. Notably, the minimum liquidation order limit of £ 10,000 will continue until March 31, 2022. This means that creditors can only pursue unpaid debts of £ 10,000 or more, compared to the pre-limit. pandemic of £ 750. This higher limit will protect companies from creditors who insist on paying off relatively low debts.

In addition, creditors will be required to seek payment proposals from a debtor company and give debtors 21 days for a response before proceeding with any liquidation action. Existing restrictions will also remain for business owners, from submitting liquidation petitions against public limited companies to repay arrears in commercial rents accumulated during the pandemic.

Lord Callanan stressed the need for a gradual withdrawal of temporary measures. He added, “We know that many small 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 do that. “

Frustration for business owners

However, some business owners are frustrated with the timeline for phasing out temporary measures. The original bill was intended to “give businesses a respite from their creditors while they seek a bailout”, stressing that these were “urgent measures needed to respond to the Covid-19 emergency”.

Yet it has often been difficult to determine to what extent the pandemic has impacted a debtor’s ability to pay its debt. And some in the industry believe companies have abused insolvency measures. Melanie Leech, Managing Director of the British Property Federation, said: “With each passing day, injustice hinders the ability of landowners to tackle the abuse of moratoriums by well-capitalized companies that can afford to pay. a rent goes up.

Government says “businesses should pay contractual rents where they can” and insists the new measures will benefit shopping streets, hospitality and leisure sectors, which have been among the hardest hit. during the pandemic.

Here to advise

Whether you are a business owner or a tenant, it is important to understand how these changes could affect your rights and responsibilities. If a debtor owes you money or you are threatened with a liquidation order by a creditor, we can help you find a solution. Contact us on 0344 967 2505 or contact a member of our team at woodfines.co.uk.

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