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06 July 2021

Government extension of insolvency and eviction protections for businesses

With ‘freedom day’ looming, and amidst uncertainty over the number of Covid cases in the UK, the government previously announced the extension of several temporary measures in place to support businesses, brought in via amendments to the Corporate Insolvency and Governance Act 2020: the effective ban on statutory demands, restrictions on winding-up petitions, and the moratorium on landlords evicting commercial tenants.

Extension of provisions affecting use of statutory demands

If a statutory demand is served on a company during the “relevant period”, then that demand cannot currently be relied on as evidence of insolvency, for the purpose of a winding up proceeding. Initially, the “relevant period” ran from 1 March 2020 to 31 December 2020. However, it was extended to 31 March 2021, and has now been extended again to 30 September 2021, with Government announcing that such measures were intended to give “…businesses the opportunity to reach realistic and fair agreements with creditors”.

The extension of this period has left many businesses unable to rely on the use of statutory demands to demonstrate insolvency for a much longer period than was expected. Although restrictions were designed to relieve pressure on businesses unable to make payments as a result of the pandemic, or rather the Government’s reaction to it, and will certainly be seen as a blessing to some struggling businesses, the extension will signal concern to many creditor companies (particularly landlords) as unpaid debts continue to build.

Although creditors will have the option of alternative means by which to show a debtor is unable to pay its debts as they fall due, such as cash flow analysis and asset vs liability assessments, relying on those courses make it that more difficult to establish the necessary grounds to apply to have a company wound up.

Restrictions on winding-up petitions

If a creditor can establish that a debtor company is unable to pay its debts as they fall due (by means other than relying on an unsatisfied statutory demand) and presents a winding-up petition, current restrictions mean that the court will continue to act as a gatekeeper, first reviewing the situation to determine whether the cause of non-payment arose from the effects of coronavirus or not.

The court will need to be satisfied that there are reasonable grounds to believe that coronavirus did not have a financial effect on the company, and that the debts would have arisen anyway. This leaves the door open for creditors faced with debtor companies seeking to take advantage of the restrictions to take action, as some are doing; and although not an easy bar to get over, we expect to see more of these applications as creditors begin to lose patience with the status quo. Debtors, conversely, may see more aggressive approaches from creditors which they will need to address. If the court determines that the debt is unpaid otherwise than due to the effects of the pandemic, the creditor will be permitted to present a winding-up petition and an order may be made, just as before.

However, it certainly seems to be the case that the extended time period for these restrictions will continue to severely limit the number of winding-up petitions being made, while parties endeavour to negotiate other arrangements.

Moratorium on landlords evicting commercial tenants

The Coronavirus Act 2020 contains provisions which restrict a landlord’s ability to forfeit a commercial lease for non-payment of rent. This measure came into force on 26 March 2020 and should have ended on 30 June 2020. However, it has now been extended several times to 25 March 2022 for business tenancies in England (and until 30 September 2021 for those in Wales).

This measure will apply to most business tenancies, but there may be some exceptions and so tenants will need to seek advice to confirm whether their tenancy is covered. Some exceptions not likely covered by the moratorium include: licences, tenancies at will, and farm business tenancies.

Whilst the moratorium restricts a landlord’s ability to forfeit a lease for non-payment of rent, the provisions also include any other payments under the lease such as the service charge or insurance contributions. Additionally, the moratorium protects commercial tenants who are unable to make these payments for reasons other than the effects of coronavirus.

The provisions are markedly friendly for tenants, and the preservation of that status quo into 2022 in England, seem likely to cause concern for unpaid landlords, who will no doubt be looking at alternative means by which to recoup or reduce losses.

If you wish to discuss any aspect of this article, or are a commercial tenant or landlord in need of assistance, please contact our lawyers in our insolvency or our property litigation teams at enquiries@bpcollins.co.uk or call 01753 889995.

Simon Carroll

Simon Carroll

Tel: 01753 279037 | 07891 990964

Phil Hind

Phil Hind

Tel: 01753 278652 | 07894 608231

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