We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
Pandemic-related measures to protect businesses from insolvency will be phased out
Phasing out will be starting from 1 October 2021 of temporary measures brought in to support businesses from insolvency during the pandemic lockdown impacts. As the economy returns to normal trading conditions, the restrictions on creditor actions will be lifted.
Corporate Insolvency and Governance Act 2020 protected companies in financial distress from credit action since June 2020. The act contained permanent and temporary measures to update the UK insolvency regime. Government has announced new measures which will be brought in to help smaller companies before creditors can take action to wind them up.
From 1 October 2021 the new measures 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.
These new measures will be in force until at least 31 March 2022.
Position in relation to commercial rent arrears
The above measures do not apply to commercial rent arrears. It is advised that all 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.
Commercial tenants will continue to be protected from eviction until 31 March 2022, while the government implements a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic.
ACCA technical factsheet, Business Recovery Options, highlights what recovery work members can undertake for their clients and provides guidance on alternative arrangements.
This article highlights directors’ duties to avoid company insolvency. Directors of companies in financial difficulty could consider the following actions:
- Hold more frequent board meetings informed by up-to-date, accurate cashflows and other relevant financial information
- Ask (and minute) two questions at every board meeting:
- Does a path to solvency exist? and
- Is it better for creditors that the company continues to trade or enters insolvency?
Ensure that appropriate directors and officers insurance policies are in place.