Government to Extend Insolvency Measures While Covid-19 Crisis Endures

The Department for Business, Energy and Industrial Strategy has announced that temporary insolvency measures will be extended as the COVID-19 crisis endures. Measures intended to protect struggling businesses from insolvency will be held in place while the country faces an unprecedented economic downturn brought about by the pandemic.

With the pandemic continuing to escalate across the UK, increased social distancing regulations, localised lockdowns and a rise in COVID-19 cases across the country are causing many businesses to become financially insolvent.

But with the crisis seemingly nowhere near its end and the economy continuing to falter, the government is providing struggling businesses with an array of support mechanisms designed to help them survive. This latest government measure might not be new, but it’s very much welcomed across the UK by companies facing financial hardship.

Extension of Insolvency Measures

Early in the financial year when the extent of the pandemic’s fallout was only yet becoming evident, the government instigated a raft of measures designed to protect businesses directly affected by the COVID-19 crisis.

These measures involved granting companies the ability to hold remote AGMs, a ban on winding-up petitions for insolvent businesses, and many other measures that would ensure businesses would not have involuntary insolvency measures forced against them.

These insolvency measures were only ever intended to be temporary, but with the pandemic not nearing an end, an extension of these measures has been deemed necessary by the government. On 24 September 2020, the Department for Business, Energy and Industrial Strategy announced that the measures would be renewed, with many of these support measures scheduled to remain in place until as late as 31 March 2021.

Business Minister Lord Callanan gave the government’s reasoning for these extended measures in a departmental press release:

‘It is vital that we continue to deliver certainty to businesses through this challenging time, which is why we are now extending these important and necessary measures to protect companies from insolvency.’

Lord Callanan went on to say that:

‘Through this measure, we want to ensure businesses are able to not only come through this testing period but also to plan, adapt and build back better.’

It’s hoped that the extended support will give struggling businesses ‘much needed breathing space’, helping companies to survive and become profitable again in the future, post-pandemic.

Which Insolvency Measures Have Been Extended?

The government originally instigated new measures through the Corporate Insolvency and Governance Act, introduced on 26 June 2020. These measures were set to expire on 30 September 2020.

The act aimed to relieve pressure on struggling businesses, and it’s these measures that have been extended. They include the following:

  • Until 30 December 2020, businesses and companies obliged to hold Annual General Meetings (AGMs) are able to do so remotely.
  • Until 31 December 2020, statutory demands and winding-up petitions are restricted.
  • Except for small businesses, termination clauses have been prohibited to ensure continued supplies.
  • Businesses cannot be evicted from their business premises if they’re unable to pay rent due to coronavirus.
  • Companies facing insolvency can be subject to a moratorium, halting insolvency proceedings that would otherwise be levied against them.

What Does This Mean for Struggling Businesses?

For struggling businesses that would otherwise be facing insolvency, the extension of these insolvency measures could prove to be the difference between ceasing business forever and surviving to trade again in the future.

It’s important to note that the measures are targeted at businesses struggling due to the coronavirus pandemic. Of course, this can be interpreted loosely, as the entire economy has been adversely affected by the economic downturn brought on by a nationwide lockdown.

The new measures will help businesses to essentially stay in the game while the pandemic continues to run its course. The most important component of the extensions is the moratorium on insolvency proceedings, which will allow businesses in the red to avoid insolvency proceedings, at least as long as the measures have been extended for.

This moratorium on insolvency proceedings can be applied by any company that has faced insolvency proceedings within the last 12 months. It runs until 30 March 2021, but after this date, insolvency proceedings can once again be levied against businesses that owe money to creditors.

This grace period does however give businesses the opportunity to re-evaluate their outgoings, restructure the company, or find new target markets. Companies that have lost trade, lost customers and lost business because of COVID-19, now have an opportunity for corporate recovery or business turnaround, with no threat of insolvency for a limited time.

In addition, businesses are further protected against aggressive creditors if they are struggling to pay the money they owe. Creditors cannot make statutory demands until 31 December 2020 at the earliest instance, as long as the debts owed cannot be paid back due to coronavirus. Again, this takes off the pressure from businesses that are struggling to trade because of the pandemic, and that would otherwise face harsh repayment terms from creditors. Businesses can use this ‘breathing space’ to re-evaluate their accounts, and find new target markets or avenues for turning a profit in the future.

Businesses facing insolvency are able to keep their supply chains intact, which could prove to be essential in the recovery process. The government has prohibited termination clauses, which for businesses means that their suppliers are unable to terminate supply contracts, even if they aren’t currently being paid. Suppliers are also unable to call in any debts if the company that owes them money is facing insolvency or going through corporate recovery. For struggling businesses unable to keep up with repayments, this provides an extra avenue for continuing trade and turning over custom.

However, if your business is a small-scale supplier and is facing insolvency, you’re exempt from this prohibition and are able to call in money owed from larger companies or can stop supply if payments aren’t coming in and your contracts allow this to happen. These measures are in place until 30 March 2020, giving businesses what the government has termed ‘breathing space’.

Businesses Can’t Be Evicted From Their Premises

Another important element of the COVID-19 insolvency measures is that businesses can’t be evicted from their premises. Commercial eviction bans have again been extended, until 30 December 2020.

For businesses that are unable to pay their commercial rent, this eviction ban has been a lifeline during the pandemic. Businesses are encouraged, however, to rearrange payments with landlords and, where possible, reschedule payments, reorganise debts and arrange to pay rent in arrears when money becomes available again.

This measure will help to protect businesses with premises that have been closed, or offices which have remained empty due to the pandemic, with a view to continue trading again in future months when social distancing rules have relaxed.

Will ‘Remote’ Business Be the Future?

The government has extended measures that give companies permission to hold Annual General Meetings remotely. For business in general, this is an interesting new development that the government is looking to promote. It could be a measure that stays in place well into the future, allowing companies and individuals to conduct more of their business remotely while staying socially distanced.

This allows shareholders and directors to continue to operate their business, even if their office has been forced to close or if their staff have been forced to self-isolate. As remote working continues to gain traction and popularity across the UK, this could be a development that’s set to stay with us for the long term, and a development that company directors should be prepared to keep in place for future financial years.

Will These Measures Be Extended Again?

The insolvency measures that have been extended were only ever intended to be temporary. The government originally intended the measures and exemptions to last just three months, but already, the pandemic has proven to be much longer lasting than anticipated.

Businesses should not look at these measures as a ‘life-saver’ but only as a temporary fix, because it’s unclear if they will be extended once more in the future. If the pandemic continues to cause as much economic destruction as it already has, then it’s likely the government will either extend these existing measures again or bring in new measures. That, however, remains to be seen.

Unfortunately, these are unprecedented times. Financial planning has become difficult but not impossible. Irwin Insolvency recommends that businesses facing financial hardship or insolvency begin insolvency planning early and seek professional advice from a licensed insolvency practitioner.

Contact Irwin Insolvency Today for Your Free Consultation

With ever-changing rules and regulations governing a faltering economy in the midst of the pandemic, these aren’t the best times to try and go it alone. Government measures are constantly being reviewed and updated, as is the level of help and support your company could be entitled to.

With years of experience in the insolvency sector, Irwin Insolvency can provide the expert advice and analysis that your business needs to survive these trying times. Our insolvency practitioners are up to date on the latest news and advice and are ready to help you. Contact Irwin Insolvency today for your free consultation.

Contact Irwin Insolvency today for your free consultation

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About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.