Government Relief Measures – Yet Another Extension.

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On 16 June 2021, the UK government announced its decision to extend some of the temporary relief measures introduced under the Corporate Insolvency and Governance Act 2020 (CIGA). CIGA, introduced in June 2020 was brought into effect to ease pressures on businesses facing imminent threat of insolvency. Among the worst hit by the Covid-19 pandemic have been small and medium sized businesses, the entertainment, hospitality, and tourism sectors.

What you need to know

Latest changes to the key relief measures under CIGA:

  1. Temporary prohibition on creditors issuing statutory demands and presenting winding up petitions for debts arising out of or in businesses affected by Coronavirus will now extend to 30 September 2021 from the previous deadline of 30 June 2021. At present, creditors can only present a winding up petition, if they can successfully pass the “Coronavirus test” by proving to the court that:
  2. they have reasonable grounds for believing that Covid-19 has had no financial impact on the company in debt;

or

  1. that the debt issues would have risen regardless of the impact of the pandemic on the company.

This is quite a high hurdle for creditors, and many debtors have found that they can relatively easily frustrate a winding up petition.

  1. Prohibition placed on forfeiture of commercial leases by landlords for non-payment of rent was due to expire on 30 June 2021. This has now been extended for a second time to 25 March 2022. This means that the landlords will have to wait nine more months before they can exercise their rights and evict their commercial tenants for failure to pay arrears of rent. In addition, the restriction on the landlord’s ability to seize goods belonging to the tenant, for recovery of rental arrears also stands extended to March 2022. The Government is positively encouraging commercial tenants to pay rent, but commercial landlords will struggle to enforce these sentiments.
  2. However, there has been no mention of any extension of the temporary suspension of personal liability of directors for wrongful trading. As such, it may be assumed that the ‘relevant period’ for determining director’s liability, will expire at midnight of 30 June 2021. After this date, directors will no longer be protected from wrongful trading liability arising under section 12 of CIGA and sections 214 and 246B of the Insolvency Act 1986. This may well be extended.

How will this affect businesses?

This latest announcement of the Government is bound to test the patience of creditors and commercial landlords, who have been waiting for more than a year to sort out their finances and get paid what is due to them. These temporary relief measures are good at providing breathing space and giving struggling businesses a genuine shot at trying to turn things around. However, a word of caution! These are only temporary measures, which will at some stage end. If there are no further extensions, insolvency practitioners can expect to get busy from the Autumn of this year, as when the restrictions are lifted (if they are) on 30 September 2021, the floodgates will open as frustrated creditors enforce their rights.

However, the Government should be recognised for their response measures in tackling the unprecedented impact on the UK economy. The introduction of measures such as the furlough scheme, Coronavirus Business Interruption Loan Scheme (CIBILs) and various reliefs under the Coronavirus Act 2020, CIGA and Commercial Rent Arrears Recovery (CRAR), have helped the economy to slowly get back on its feet.

There seems to be a common theme running across all Government decisions lately- extension.

It remains to be seen how the extension of lockdown restrictions to 19 July 2021, will affect the commercial sector which the Government has been trying hard to support with its decisions to extend relief measures.

If you are struggling to pay your debts, it is important that you seek help from a licensed insolvency practitioner or turnaround specialist.  The more runway you give yourself to renegotiate, or resolve matters the more choice you have and a better chance of avoiding an insolvency process.   Equally, the sooner you seek assistance the more likely you are to avoid personal liability, which despite the current suspension of wrongful trading can and will bite against individual directors.

Speak to our specialist Corporate Restructuring and Insolvency Solicitors.

As ever, if you are suffering from financial worries or are concerned, you should always seek professional advice. Email our team at insolvency@ibblaw.co.uk