Insolvency update – New legislation on winding up petitions announced
Where we have previously seen extensions of provisions by the Government delayed by typically a further 3-6 months, the recent Government announcement has this time introduced new legislation on winding up petitions.
On 9 September 2021, the Government announced that the Corporate Insolvency and Governance Act 2020 measures will begin to be phased out from 1 October 2021.
TEMPORARY MEASURES FOR WINDING UP PETITIONS
Rather than a full return to pre-pandemic status, where winding up petitions could be issued for as little as £750, the temporary measure will only allow winding up petitions for debts of more than £10,000. This is a temporary measure that will only be in force until 31 March 2022.
This is the first time the debt has been increased since the introduction of the Insolvency Act 1986. (For personal debt, the threshold was increased to £5,000 in 2015).
The new legislation will require creditors to seek proposal for payment from the debtor business, giving them 21 days for a response before being able to proceed with winding up action.
LANDLORDS OWED RENT WILL BE EXEMPT FROM THESE RULES
An exception to this rule is to landlords owed rent, who are still prohibited from petitioning commercial rent arrears against limited companies. Protection still exists for such tenants until 31 March 2022, whilst the Government implements a rent arbitration scheme.
GOVERNMENT SUPPORT IS COMING TO AN END WITH LITTLE SIGN OF FURTHER EXTENSIONS
If you are owed debt of over £10,000, there is no longer any Government protection from 1 October 2021 and therefore, immediate action can be taken to recover the debt.
Some Bounce Back Loans have now reached the 12 month period since being initially advanced, so instalments will begin to fall due. If you are suffering from cashflow pressures, seek advice early to have a wider variety of options.
With no mention to any extension of the Furlough scheme beyond 30 September 2021, and with the above revision to petition values, it certainly appears that the Government has decided against any further extensions to the measures in place to support businesses.
Much will depend on the pandemic and whether any further lockdowns are required, but the Government’s intention seems clear that it is no longer prepared to continue holding the hand of ailing businesses.
Update by Menzies LLP