Covid-19 insolvency measures extended to end June

The government has extended measures in the Corporate Insolvency and Governance Act to protect businesses during the pandemic for a further two months

This includes an extension of the suspension of liability for wrongful trading from 30 April 2021 to 30 June 2021.

There will also be respite for those facing winding up petitions with the same extension to end June, while the amendments to the use of moratorium is also extended.

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. Small suppliers will remain exempted from the obligation to supply until 30 June 2021.

The government has also 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.

‘The objective of a moratorium is to provide protection to the company from adverse creditor action for a short period whilst the directors attempt to restructure and rescue the business. It is not to achieve a sale of its business and assets,’ explained Norton Rose Fulbright.

‘The moratorium procedure is aimed at ensuring that companies can maximise their chances of survival during the Covid-19 crisis. It is intended to be a seamless procedure that keeps administrative burdens to a minimum, allows for a speedy entry process and does not add disproportionate costs to already struggling businesses.’

According to the roadmap, 21 June will see the removal of all restrictions on citizens and businesses, following the opening of non-essential retail on 12 April and all indoor dining and pubs by mid May, assuming that current covid data reflects a safe opening.

Insolvency and restructuring trade body R3 is urging directors of Covid-hit businesses to make the most of the time granted by the government’s extension of temporary insolvency measures to plan for the future.

R3 is calling on company directors to use this additional time to plan for when these measures and other government support schemes end, and to seek advice about the options open to them to address their financial issues.

Duncan Swift, past president of R3, said: ‘The government’s decision to extend the CIG Act temporary insolvency measures will be a welcome boost for firms that are struggling as a result of the pandemic.

‘It also provides directors of these firms with more time to plan for when these measures – and government support initiatives like the furlough scheme – end, and we urge them to make the most of this.

‘We’ve been through a period of unprecedented government support, and directors need to plan for how they will manage when these measures are wound down – especially as it will take time for the business environment to return to how it was before the pandemic started.

‘Now is the time for anyone with worries about their business finances to seek professional advice. Seeking this now rather than later typically provides more options to deal with challenges faced by the business, more time to decide which option is most suitable, and more time to implement the most appropriate solution.’

Dr Roger Barker, director of policy & corporate governance at the Institute of Directors said: ‘During the pandemic, it has been essential to provide company directors with the means by which they can sustain inherently viable businesses. An important component has been the temporary suspension of the potential liability faced by directors if they continue to operate a company that is facing financial difficulties.

'During the exceptional circumstances of the pandemic, this has been an appropriate step for government to take in order to ensure that viable businesses survive and are in a position to contribute to a meaningful economic recovery.’

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021

 

Sara White |Editor, Accountancy Daily, published by Croner-i

Sara White is editor of Accountancy Daily, published by Croner-i, and in...

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