COVID-19 – Final UK temporary measure removed
On 28 March 2022, the Insolvency Service announced the end to all COVID-19 temporary measures, effective from 1 April 2022. Most measures had previously been revoked with the last of these measures being the restriction on winding up companies. This restriction was partially lifted in October last year in the course of the gradual phasing out of the restriction on winding up and it has now been lifted in its entirety. This could well lead to a significant increase in creditor activity following the inability to pursue most winding up petitions for a period of approximately two years.
In June 2020, the Corporate Insolvency and Governance Act 2020 received Royal Assent. This legislation introduced a raft of temporary measures including in relation to insolvency (some of which had been announced in the preceding months, but which did not become law until June 2020).
The temporary measures were designed to protect businesses and individuals from action whilst the effects of COVID-19 were being felt. This was with a view to providing a safety blanket to individuals and businesses, enabling them to avoid insolvency, bankruptcy and other action while COVID-19 was impacting income and profitability.
For example, as covered in a previous Perspectives note, s214 Insolvency Act 1986 – which imposes personal liability on directors that cause their businesses to trade whilst insolvent – was suspended. This temporary measure was lifted from 1 July 2021 so that the only outstanding measure in place up to 1 April 2022 was the restriction on winding up companies.
This restriction on winding up companies was previously phased out with the introduction of new rules covering the period 1 October 2021 to 31 March 2022. These new rules allowed for winding up petitions to be presented on specific grounds only, as follows: (i) debts due in respect of commercial leases only where they arise by reason other than a financial effect of COVID-19 (part of a range of measures which since 2020 had restricted the rights of landlords to enforce in relation to commercial leases); or (ii) debts meeting certain specific conditions such as a financial value exceeding £10,000 (significantly higher than the standard pre-COVID-19 threshold of £750).
The restriction on winding up will now be revoked in its entirety, however, so the pre-pandemic position is effective; winding up petitions can be presented in respect of all debts exceeding the standard £750 threshold. It is anticipated that creditors – who have not been able to seek to wind up insolvent companies in respect of most debts for approximately two years – will now seek to take action which may lead to a significant increase in petitions.
Relatedly, the Commercial Rent (Coronavirus) Act 2022 received Royal Assent on 24 March 2022. This legislation is designed to help resolve commercial rent debts accrued because of the pandemic. The legislation introduces a Code of Practice designed to encourage negotiated agreements in relation to such debts, and a new binding arbitration system to resolve them where agreement cannot be reached. The legislation also removed the general mortarium on commercial evictions, such that an increase in evictions is likely to follow.
Debt recovery processes are potentially strong weapons for creditors faced with unpaid debts. With no further restrictions on statutory demands or winding up petitions, the coming months are likely to see renewed activity in this arena. The best approach to outstanding debt continues to be for creditors to undertake a thorough review of all potential avenues at the outset, before engaging in proactive steps to seek recovery.