Long-term plan needed as temporary insolvency measures lifted - Chamber

The government must create a long-term solution that benefits both tenants and landlords following the decision to end temporary insolvency measures, business leaders said today.

From 1 October, measures brought in to support businesses from insolvency during the pandemic will be phased out.

Firms in financial distress as a result of Covid-19 restrictions have been protected by the Corporate Insolvency and Governance Act 2020 since June last year.

This was to ensure that viable businesses affected by the restrictions on trading during the lockdown periods were not forced into insolvency unnecessarily.

Now, the restrictions on creditor actions will be lifted, with new measures brought in to help smaller companies get back on their feet.

The new legislation will:

• Protect businesses from creditors insisting on repayment of relatively small debts by temporarily raising the current debt threshold for a winding up petition to £10,000 or more
• Require creditors to seek proposals for payment from a debtor business, giving them 21 days for a response before they can proceed with winding up action

The government says these measures - which come into force from 31 March - will give companies more time to trade their way back to financial health before creditors can take action to win them up.

Raj Kandola (pictured), head of policy at Greater Birmingham Chambers of Commerce, said: “The extension of debt protections will be welcomed by those commercial tenants that have been knocked sideways by the pandemic and are still struggling with huge overheads.

“The extra support offered by these provisions will hopefully offer some much-needed breathing space, particularly for those hospitality businesses that have suffered from enforced closures and a general reduction in trade.

“Nevertheless, as we set out in our latest lobbying document, The Final Hurdle, we would urge the Government to create a long-term solution which is mutually beneficial for both tenants and landlords.

“Potential solutions could include introducing tax credits or partial rent grants to support landlords that are offering to waive rent or a reduction to those firms in genuine financial distress. ”

Click here to review the Final Hurdle.

Business Minister Lord Callanan said: "The success of our vaccine rollout means we are seeing life and the economy returning to normal with a strong rebound, and the time is right to lift the insolvency restrictions that were needed during the pandemic.

"At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures protections will help them to do that.

"Businesses should pay contractual rents where they are able to do so. However, the existing restrictions will remain on commercial landlords from presenting winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic."

Continuing the restriction on winding up, in respect of commercial rent only, supports the announcement on 16 June that commercial tenants will continue to be protected from eviction until 31 March 2022, whilst the government implements a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic.