Coronavirus and Insolvencies – what do the measures voiding statutory demands and winding up petitions mean for businesses? BLM answers

Coronavirus and insolvencies – what do the measures voiding statutory demands and winding up petitions mean for businesses? BLM answers

We have been monitoring closely the steps being taken by the government to prevent an upsurge in  insolvencies during the coronavirus outbreak. If at all possible, they want businesses to bounce back “on the other side”. Recently, we reported on the temporary suspension of the wrongful trading rules, to will apply retrospectively from 1 March, to give directors of businesses some breathing space. Alongside this approach, most winding up and bankruptcy petitions would be adjourned until June 2020. We remarked then that “the wolf at the door, in the form of a creditor’s petition, does not go away, but it won’t get entry. At least, not yet”.

What are the usual consequences for business of winding-up petitions?

The problem of creditors issuing winding up petitions, usually preceded by statutory demands, remained real. If a debtor company has a winding up petition served on it, then even if the hearing of the petition is months away, it can have profound consequences in the meantime. No payments can be made from its bank accounts without court permission and its contracts may face the risk of termination. If a petition is advertised, that will be the death knell for most companies.

How is the government protecting commercial tenants during Coronavirus/COVID-19?

The government has recognised this and is introducing temporary measures to protect commercial tenants from landlords taking action to recover outstanding rents. Although landlords could not evict tenants for non-payment of rent, it was still open for them, until now, to commence an insolvency process in order to pressurise tenants to pay such rents. The measures include the temporary voiding of statutory demands and winding up petitions issued to commercial tenants, in addition to more breathing space to pay rent and a general discouragement of aggressive debt collection tactics. The move has been welcomed by tenants’ organisations.

This should be another step towards stopping the spike in insolvencies that would be so damaging to the economy, although it does nothing to help the cash flow problems of commercial landlords. But it should be noted that it applies to commercial landlords and tenants, not to other commercial creditors and debtors. How this operates where a commercial landlord also happens to be a supplier of goods or services to the tenant, for which there are also outstanding debts, will be interesting to see.

What do these measures mean in the long-term for commercial landlords and tenants during Coronavirus/COVID-19?

These measures do not cure the problems with customers and supply chains, which may be terminal. Or the banks, councils, trade creditors and, of course, the government from seeking satisfaction of their debts in the longer term. Landlords will be still be looking for full settlement of rent in the longer term. Importantly, it also doesn’t provide businesses that are fundamentally non-viable with an automatic bounce back.

What to do if your business has concerns about solvency/insolvency during Coronavirus/COVID-19?

Despite the government providing some further reassurance in these challenging times, there remains much for directors and management to think about. If you have any concerns about the solvency of your business and want to consider its restructuring or cessation, get professional advice sooner rather than later. Speak to BLM's experts in insolvency and commercial property law.

 

Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

 

Who to contact

Stuart
Evans

Partner , London

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Leighton
Baldwin

Associate , Manchester

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