Government extends business insolvency breathing space measures

The Government has announced a new extension to breathing space measures which will be used to protect businesses from insolvency during the coronavirus (COVID-19) pandemic.

A raft of changes to protect businesses from insolvency were introduced in the Corporate Insolvency and Governance Act and were due to expire on 30th  September 2020. The new temporary measures include:

• Companies and other qualifying bodies with obligations to hold AGMs will continue to have the flexibility to hold these meetings virtually until 30th December 2020. This means that shareholders can continue to examine company papers and vote on important issues remotely
• Statutory demands and winding-up petitions will continue to be restricted until 31st December 2020 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 30th 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 30th 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. The temporary moratorium rules will also be extended to 30 March 2021

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.”

Responding to the announcement Colin Haig, President of insolvency and restructuring trade body R3 said “The pandemic has hit British businesses in a way that no-one could have imagined or planned for. These temporary insolvency measures, combined with the furlough scheme and the package of emergency business loans, have played an important role in preventing financial pressure from translating into increased corporate insolvency levels of the size and scale we would expect to see in this type of economic climate.’

“The insolvency and restructuring profession will also welcome the extension of the temporary relaxation of entry requirements for the new moratorium procedure. This measure could enable more businesses to access this important tool over the coming months, and 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.”