R3 responds to end of temporary insolvency measures announcement

09 September 2021

Christina Fitzgerald, Vice President at insolvency and restructuring trade body R3, comments on the Government’s decision to lift its temporary insolvency measures and introduce a temporary debt limit for winding up petitions:

“After 18 months of helping businesses who have borne the brunt of the economic consequences of COVID, the Government has now started the process of withdrawing its legislative support.

"Today’s announcement shows it has chosen to taper this withdrawal rather than removing its support in one go, to reflect the opening up of the economy and the need to balance the interests of businesses with those of their creditors.

“The end of the ban on the use of winding up petitions, along with the temporary introduction of the new £10k debt limit – increased from the original limit of £750 – will allow those who are owed significant sums of money to take action against those who owe it, while at the same time preventing viable businesses facing the threat of winding up petitions over relatively small sums of money. However, this measure won’t apply to commercial rent arrears accrued during the pandemic.

“It is also worth noting that this is the first time the debt limit has been increased since the introduction of the Insolvency Act in 1986. While this increase will only be temporary, it’s a significant one compared to the original sum of £750. Given the challenges businesses have faced during the pandemic, the new limit is a welcome adjustment.”

“The new requirement for creditors to seek repayment proposals from debtor businesses, before being able to take winding up action, formalises an approach that we have seen from many creditors since the onset of the pandemic. Since it started, the majority of creditors have recognised that engagement rather than immediate enforcement can lead to better outcomes for everyone. 

“We urge anyone who is concerned about the ending of the temporary insolvency measures to seek advice, and do it now. Businesses who seek advice early often have more options open to them, more time to make a decision about their next steps, and more favourable outcome than if they’d waited and let the problem spiral.”

ENDS

About the new legislation 

1. 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.
2. 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.

These measures will be in force until 31 March 2022.

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 Government's 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.