Earlier this month (16 June), the UK Government announced that the current restrictions in place on serving of statutory demands and restrictions on filing winding up petitions where unpaid debt is due to Covid-19 will be extended for a further three months to 30 September 2021. This extension follows previous extensions of the prohibitions on filing statutory demands and winding up petitions, which we have discussed in detail in our earlier article.
In a significant new development, it was further announced that the Government will be introducing new legislation to assist landlord and tenants resolve coronavirus related arrears. The announcement is sparse on detail and we will have to wait further announcements to understand how this is intended to operate, but the new legislation will encourage landlords to enter into negotiations with their tenants in respect of arrears which have accrued as a result of Covid-19 trading restrictions (i.e. “ring-fenced” rent arrears). Although tenants who can pay are expected to pay, landlords and tenants are encouraged to enter into negotiations on how to deal with these ring-fenced arrears, with landlords being expected to “share the financial impact with their tenants”. Failure by the landlord and its tenant to reach an agreement in respect of such ring-fenced rent arrears will lead to the parties having to enter into a binding arbitration process. In the meantime, the ban on commercial evictions has been extended until 25 March 2022.
The suspension of liability for wrongful trading provisions has not been extended and will automatically expire on 30 June 2021.
The overall number of company insolvencies since the start of lockdown last year has been impacted by the range of Government measures put in place to financially support companies in response to Covid-19. The Insolvency Service statistics for May 2021 show that company insolvencies in May 2021 were 25 per cent lower when compared to May 2019 (but seven per cent higher when compared to May 2020). The UK government has been keen to avoid a ‘cliff edge’ for businesses falling into insolvency when temporary relief measures come to an end. In recent months, there have been a number of high profile companies using insolvency restructuring tools, including the new restructuring plan, to restructure their rent arrears and other liabilities. It will be interesting to see whether, during this period of extended relief, there will be an uptick in companies using such restructuring tools to deal with their accrued liabilities.
Going forward the Government will need a unified approach to the measures it has introduced to assist businesses during the pandemic and it remains to be seen whether the current extension merely pushes back the insolvency cliff edge.