Temporary insolvency restrictions protections are being lifted and new targeted measures to support small business and commercial tenants introduced.
The UK Government has announced that temporary measures brought in to support businesses from insolvency during the pandemic will be phased out from 1 October.
Companies in financial distress as a result of the pandemic have been protected from creditor action since June last year, through the Corporate Insolvency and Governance Act 2020. This was to ensure that viable businesses affected by the restrictions on trading during the lockdown periods were not forced into insolvency unnecessarily.
As the economy returns to normal trading conditions, the restrictions on creditor actions will be lifted, with the exception of commercial landlords pursuing commercial rent arrears which, as we have said previously, are circa £6 billion.
The new measures being brought in will still offer smaller companies some protection by temporarily lifting the minimum level of debt at which a creditor can petition for a winding-up order from £750 to £10,000 thus preventing small creditors from being “overzealous” in pursuing relatively small debts as companies are trying to trade out of their predicament.
Creditors will also be required to seek a repayment plan from a debtor business and give them 21 days to respond prior to any winding-up petition.
The Government hopes that with these new measures in place until 31 March 2022 smaller businesses will have the breathing space to get back on their feet as economic activity increases. However, our view remains that there are many challenges facing SME’s and whilst we understand that the Government wants to help we are unconvinced about the medium-term outlook.
The £10,000 threshold feels extreme and potentially there are many business owners currently looking at a list of creditors owing up to £10,000 who will now find themselves in a serious predicament. Sadly, it could be that this measure which is aimed at protecting smaller businesses could have the opposite effect.
To survive and prosper it is vital that all businesses act decisively and seek independent professional advice and that is why we are always available for an initial zero cost assessment which can be arranged by contacting Alistair Dickson or Mark Phillips.