With restrictions on statutory demands and winding up petitions having been extended again, have ailing businesses been handed yet another lifeline?

Writing for AccountingWeb, in September 2020, BLM Head of Commercial Litigation Stuart Evans, said: “With the furlough scheme coming to an end, wage bills would increase again. Loans would have to be paid back, accrued debts, tax, national insurance and pension contributions would need to be settled, in circumstances where some businesses would have had little to no income for six months and cash has become more scarce. In addition, creditors were ready to take action to recover accruing debts. Protecting businesses in distress could not go on forever..”

However, measures enacted under the Corporate Insolvency and Governance Act 2020 (CIGA) to support ailing businesses, have again been extended. At the eleventh hour, the temporary restrictions on statutory demands and winding-up petitions, in place until 31 March, were extended until the 30 June 2021. This is despite the Government stating that the previous December 2020 extensions were ‘final’.  

The extension means that creditors are still fettered in their efforts to wind up a debtor until after the 30 June, unless there are reasonable grounds to believe that coronavirus has not had a financial impact on the debtor, or, regardless of COVID-19, the debtor would have defaulted on its debts.

So why has the government decided further to extend this “final” extension?

With the re-opening of non-essential businesses on 12 April 2021, and a slow, but growing consumer confidence in sectors such as retail and airlines, the additional three month extension provides breathing space for businesses to start the rebuilding process and bring their finances back under control, with creditors kept at bay. If they succeed, many insolvencies may be avoided.

Time will tell if these continued extensions have been a lifeline to some businesses or merely a delay to the inevitable. In the meantime, creditors must remain patient; hopefully these measures will not result in their failure.

It remains to be seen whether the government will extend again. It will probably go the full distance before making its decision, to see if more protection from creditor action is necessary. Whilst this extension will be welcomed by businesses under pressure, it may not guarantee their survival in the longer term.

Stuart Evans, Head of Commercial Litigation and Arthur Caplin, Trainee Solicitor

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 clients of BLM. Specialist legal advice should always be sought in any particular case.

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