Covid-19: insolvency measures extended
30 Sep 2020
The government is to extend a raft of changes to insolvency measures which were introduced earlier in the pandemic and due to end today, in order to give businesses more breathing space
30 Sep 2020
The temporary measures were included in the Corporate Insolvency and Governance Act and were set to expire on 30 September.
The extension means that companies and other qualifying bodies with obligations to hold AGMs will continue to have the flexibility to hold these meetings virtually until 30 December.
Statutory demands and winding-up petitions will continue to be restricted until 31 December to protect companies from aggressive creditor enforcement action as a result of coronavirus related debts.
Termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process.
However, small suppliers will remain exempted from the obligation to supply until 30 March 2021 so that they can to protect their business if necessary.
The modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until 30 March 2021. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months.
Measures will also ease access for companies subject to a winding up petition.
Business Minister Lord Callanan said: ‘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.
‘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.’
Steve Russell, head of business restructuring services at PwC, said: ‘Our client interactions show that the most at risk sectors remain travel, retail and hospitality but also include automotive, aviation and aerospace.
‘However, the knock-on impact on other key business stakeholders must also be factored in.
‘Key groups including landlords and suppliers, whose financial health is often tied to that of their clients, will all require information and interaction with management as will lenders, credit insurers, and pension schemes. Engaging in early discussions is vital.’
Russell said the breathing space created by the latest announcement could encourage companies to look at restructuring mechanisms outside of formal insolvency, such as company voluntary arrangements.
Colin Haig, president of insolvency and restructuring trade body R3, said the extension of the temporary relaxation of entry requirements for the new moratorium procedure should also help to facilitate the rescue of otherwise-viable businesses.
‘However, while the Chancellor's announcement will make a real difference in the coming months, these measures can't be prolonged indefinitely, and the government will face a number of questions when this extension ends.
‘What will the government's approach be to the mounting level of corporate debt in the economy? What further flexibility will HMRC provide to Covid-hit businesses which need extra time to pay their debts?
‘The government needs to make the most of the time it has bought for business, industry and the economy with today's announcement to consider how it will answer these questions.
‘We would welcome HMRC adopting a constructive approach to sensible, well-structured restructuring proposals. They are an important stakeholder in insolvency and restructuring procedures and their support at this time is and will be very significant,’ Haig said.