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Insolvency update – are businesses facing a tough few months?

Phil Farrelly

Phil Farrelly

The world of insolvency has been becalmed over the last 18 months as a result of Government support and restrictions on creditor action as part of its response to the Covid 19 pandemic which removed a number of the typical pressure points on directors.

As we head into a new phase of ‘living with the virus’, the support and restrictions are being withdrawn. The furlough scheme ended and some of those restrictions expired on 30 September 2021. From 1 October, the heat was back on or at least partially. There are still some restrictions on creditor action.

Landlords

Where a debt relates to unpaid rent or other sums due under a lease of business premises the landlord cannot  file a winding-up petition where the debt is unpaid by reason of a financial effect of COVID-19. Landlords are also restricted from forfeiting leases or exercising Commercial Rent Arrears Recovery until 25 March 2022 and face the prospect of legislation being introduced forcing them to compromise arrears accrued during the period of COVID-restrictions by an arbitration scheme.

Winding Up Petitions

The debt threshold for issuing winding up petitions has increased from £750 to £10,000 or more (although the threshold for statutory demands has not been increased from £750).

In addition, the creditor must first give notice to the debtor including a statement that if no proposal for the payment of debt to the creditor’s satisfaction is made within 21 days then the creditor intends to present a winding up petition (Schedule 10 Notice).This is a prerequisite to presenting a winding up petition even where a statutory demand is served and seems designed to promote a compromise-building approach.

At the moment these restrictions will be in place until 31 March 2022.

The new rules are no doubt designed to avoid a tsunami of insolvencies which some expected when the support and restrictions were withdrawn. The number of winding up petitions issued remains at historically low levels butin Q3  there was a marked increase in CCJs, company voluntary liquidations  (1,446 company insolvencies were recorded for the month of September – the highest since the start of the first UK lockdown in March 2020) and a 26% increase in administrations (although this is still only 39% of pre-COVID levels).

The end of October may see the expiry of the first wave of Schedule 10 Notices and the subsequent issue of winding up petitions but it is too soon to see the details of this.

This, coupled with difficult decisions relating to furloughed employees and the effect on balance sheets of  CBILs and bounce back loans could see insolvency levels start to return to pre-pandemic levels.

This is without taking into account inflationary pressures (likely to hit construction particularly hard), market issues (for example to the recent spate of energy supplier insolvencies following the hike in price rises for fuel) and supply chain and staff issues which will hit some sectors particularly hard – a recent focus on Radio 4’s World at One highlighted the issue hauliers are facing as their employees are lured away to supermarket chains offering signing on bonuses leaving their fleet sitting empty. One haulier had resorted to selling vehicles because they were struggling to find drivers to drive them!

Whatever the pinch point, many business leaders are facing a tough few months. If your business is one of them please do get in touch to discuss your situation and how we can help.

Contact Phil Farrelly

t: 0161 827 4609

m: 07917 610875

e: philip.farrelly@bermans.co.uk

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