An End to the Temporary Insolvency Measures – Almost but not CompletelyPosted: Sep 14, 2021

Companies in financial distress as a result of the pandemic have been protected from creditor action since last June, through the Corporate Insolvency and Governance Act 2020. Full details can be found here,  

The temporary restrictions that were in place will be lifted with new targeted measures to support small business and commercial tenants introduced after 30 September 2021.

The new legislation will temporarily increase the current debt threshold for winding up a company from £750 to £10,000. In addition to the increase in the debt threshold, creditors will be required to seek payment proposals from a business and will be required to allow the debtor 21 days to respond before a creditor is able to commence winding-up proceedings. These measures will be in force until 31 March 2022.

However, in a blow to landlords, the current legislation stays in place in respect of commercial rent, so they are unable to commence winding up proceedings against a limited company to repay arrears accrued during the pandemic.

In truth, the increase in the debt threshold seems like a reasonable step especially bearing in mind that the £750 limit has been in place since 1986 and the court costs of an application are currently £1,880, so commercially it seems unlikely that a creditor would pursue a winding-up order for a relatively low sum in any event. The 21-day request for payment is no different from a statutory demand which in most cases would have been issued in any event to request payment.

But as most petitions are issued by HMRC and confirmation issued last month from HMRC that, in terms of debt collection, it was ‘business as usual from the end of September, we are expecting that a large backlog of petitions will be issued in the next few weeks leading to an increase in the number of insolvencies.

Clearly, the advice to companies in debt is that you have a limited period of time to agree on a payment plan and should try to do so as soon as possible.

If you are in doubt or can’t arrange a payment plan we would recommend that you take advice. We offer free, confidential, and impartial meetings.