Yesterday, The Insolvency Service announced that the temporary provisions introduced to protect UK businesses from insolvency will be phased out from 1 October 2021. These measures, which include restrictions on creditors commencing insolvency proceedings, were introduced in June 2020 as part of the UK Government’s economic response to COVID 19.
What happened in June 2020?
On 25 June 2020, the Corporate Insolvency and Governance Act 2020 (CIGA) came into force. The UK Parliament passed CIGA to protect otherwise viable businesses from becoming insolvent as a result of the financial turmoil caused by COVID 19.
Various measures were put into place to assist companies including preventing creditors from presenting winding-up petitions to court unless they could show that the pandemic had not had a financial impact on the debtor company. There was also a ban on statutory demands.
The provisions introduced in June 2020 were originally meant to last for six months but were extended until 31 March 2021, and then again until 30 September 2021.
What is changing?
As made clear from yesterday’s announcement, companies will no longer be able to rely on the general protection offered in CIGA. The restrictions on presenting winding-up petitions and statutory demands will end.
However, the announcement from The Insolvency Service also made clear that new protective legislation will be introduced to help smaller companies recover. New legislation will be introduced to temporarily raise the debt threshold for a winding up petition to £10,000, and creditors will also now need to seek proposals for payments from debtor businesses, with a 21-day response period required before any winding up action can proceed. The UK Govt has also confirmed that the restrictions preventing commercial landlords from seeking winding up petitions relating to commercial rent arrears will stay in place. There will also be a new arbitration scheme next year, which will cover commercial rent debts accrued during the pandemic.
What’s next?
It has always been clear that the extensive measures put in place to protect debtors at the height of the pandemic would have to end at some point. As the UK economy returns to normal, the restriction on creditor actions will now be phased out. From 1 October 2021, the UK’s statutory insolvency regime will largely return to its pre-pandemic footing, although we await further details on the restrictions affecting commercial rent recovery.
Businesses now need to be mindful of the impact of the end of these measures. Creditors may welcome the return to a more flexible debt recovery regime, whilst those companies with significant debts will no longer be able to rely on the COVID-19 protections.
How can we help?
Should you have any queries in relation to the ending of temporary insolvency restrictions, please do not hesitate to get in touch with our specialised Debt Recovery team.
