Lighthouse silhouette sunset

Corporate insolvency temporary measures now being phased out

Steven Edwards, Partner, Recovery Solutions
Lighthouse silhouette sunset

Government measures to support UK businesses from insolvency during the pandemic are being phased out with effect from 1 October 2021.

In an effort to support UK businesses through the COVID-19 pandemic, the UK government introduced temporary measures as part of the Corporate Insolvency and Governance Act 2020. On 1 October 2021, a large number of those measures were lifted, but not all. We expect a range of ‘targeted measures’ to be introduced to provide continued support to certain sectors.

The objective of the measures was to provide businesses with ‘breathing space’ to allow them to continue to trade during the pandemic, and to deal with the financial impact on businesses and the general economic fallout.

The pandemic has left many businesses facing cash flow problems following periods of national lockdown and limited income. Businesses have ongoing liabilities that continue to fall due for payment, and those may remain unpaid. This has resulted in many businesses facing cash flow problems and therefore possible insolvency.

On 28 March 2020, the government temporarily suspended the provisions relating to wrongful trading. Again, this was to support businesses trading through the pandemic and prevent directors worrying about potential personal liabilities for any worsening of a business’s financial position. The suspension of the wrongful trading provisions came to an end on 30 June 2021, and were not extended.

What will happen next?

The Corporate Insolvency and Governance Act 2020 provided protection from creditor action from June 2020. However, from 1 October 2021, those restrictions were largely removed. Creditors that were previously unable to serve winding up petitions can now do so. Indications are that HMRC is also becoming increasing active in the recovery of accrued taxation.

By introducing new legislation, the government has increased the debt threshold for winding up petitions from £750 to £10,000. This will shield businesses from creditors chasing payment of relatively small sums and will be in force until at least 31 March 2022. The new legislation also requires creditors to seek proposals for payment from a business, requiring 21 days for a response before the creditor can proceed with issuing winding-up proceedings.

It is expected that a large number of winding up petitions will be issued shortly. If your business is the recipient of a petition, the best advice is to seek early advice from an Insolvency Practitioner. The recovery options available to businesses are wider at an early stage than if left too late. Talking to an Insolvency Practitioner does not mean that a business will end up in an insolvency process. The foremost intention of Insolvency Practitioners at Crowe will be to try to save your business and to explain the various available options.

How Crowe can help

At Crowe, we have a team of experienced and licensed Insolvency Practitioners who can advise you on the best course of action, depending on your business’s circumstances. Please get in touch with either Steven Edwards or Vince Green who are licensed Insolvency Practitioners, or your usual Crowe contact.

Contact us

Vince Green
Vince Green
Head of Recovery Solutions