Government Extends Help Again but are we just kicking the problem down the road?Posted: Jun 17, 2021

This is the fourth time I have written about the Government extensions of the insolvency provisions brought in during March 2020 along h with the extension of restrictions in respect of Commercial landlords.

First, what has been extended and to when. In respect of the temporary measures in the Corporate Insolvency and Governance Act, the following have been extended until 30 September 2021.

• Statutory demands and winding-up petitions will continue to be restricted.
• The modifications to the new moratorium procedure, which relaxes the entry requirements to it, will also be extended.
• The temporary moratorium rules will also be extended.
• The Government had temporarily removed the threat of personal liability arising from wrongful trading for directors who continue to trade a company through the pandemic with the uncertainty that the company may not be able to avoid insolvency in the future. It is our understanding that this will end on 30 June 2021, unlike the other provisions. Therefore it seems likely that directors could be excused of wrongful trading at a time when they are not allowed to trade, for example, nightclubs, travel, events etc. 

Next, the ban on evictions for commercial tenants has been extended until March 2022 and the Government plans to bring into legislation a new arbitration system to resolve disputes between landlords and commercial tenants affected by the pandemic.

First of all, I welcome any help that this provides to those businesses that are still struggling to deal with the effects of the pandemic, particularly those industries which are still closed, for example, nightclubs, events, and travel.

However, I am concerned that in truth we are only pushing the problem further down the road and that whenever the restrictions are lifted some businesses will just fall off the edge of the cliff.

Normally I am not a great fan of landlords and in the past have found it difficult to negotiate with them when a business is in trouble because of the powers they have to distrain on assets, change locks, etc.  But these restrictions are, in effect, stopping one class of creditor from exercising their rights to get paid. To put it another way, how would you feel if Government rules required you to provide your services and goods to a customer for 2 years without any guarantee of payment?

The knock-on effect to you is simple. It is likely that when the restrictions end there will be many business failures leaving you, as an unsecured creditor, in a much worse position because the landlord will have a substantial claim for outstanding rent and so if there is any dividend, it will be even smaller. It should also be remembered that in December 2020 the Government changed the rules to make themselves preferential for HMRC debts. Therefore, as I have previously mentioned, good credit control is more important than ever.

The restrictions on statutory demands and winding up petitions are clearly having an effect. For example, Compulsory liquidations in May 2021 were 89% lower than in May 2019 but the fear is that many businesses that would have ordinarily failed are still trading because of the support provided by the Government and will eventually fail when the support is withdrawn.

Again, as mentioned above, it is important that good credit control systems are in place to ensure you don’t become an unsecured creditor.

If your business is going through a rough time and you think you could be facing insolvency, then talk to us. The first consultation is free and whether it results in comforting reassurance, a rescue plan, or an insolvency process, the sooner we start, the better your result will be. We hope it can provide you with a ‘roadmap’ to the future.