As many of the Coronavirus restrictions are to remain in place until July 19th 2021, the government plans to extend some of the temporary COVID insolvency rules to support struggling businesses.
Award-winning South West accountancy firm Milsted Langdon say an extension to the measures is welcome, but warn that businesses in distress still face tough months ahead.
Originally introduced in March 2020, the Corporate Insolvency and Governance Act has provided an important lifeline to businesses and their owners by relaxing some of the tough rules around insolvency and giving many organisations additional time to recover.
Under the latest extension, the free-standing moratorium for UK companies – which offers businesses a formal ‘breathing space’ in which to pursue a rescue or restructuring plan without pressure from creditors – will be retained until September 30th 2021, as will the suspension for serving statutory demands and restrictions on winding-up petitions where the unpaid debt is due to COVID-19.
Statutory demands will be void if served on a company before this date, while winding-up petitions based on a company’s inability to pay its debts will be reviewed by the courts to determine whether the cause of non-payment is Coronavirus-related.
However, other elements of the Act will draw to a close on June 30th. These include the suspension of the wrongful trading rules, which until now have removed from directors the threat of personal liability for wrongful trading – thereby giving them the freedom to use all resources to rescue their business.
Tim Close, Chairman and Restructuring Partner at Milsted Langdon, said: ‘The impact of the latest extension shouldn’t be underestimated, as for those who are in dire need of help, it gives them additional time to restructure and seek assistance.
‘Conversely, however, for creditors it means yet more time waiting for their debts to be recovered, which could affect their cash flow and viability.’
Additionally, Tim said that the true picture of insolvency in the UK is not yet clear – in part due to the ongoing support from the government.
‘If you look at the latest insolvency statistics, things don’t seem that bad. In fact, in the last year, corporate insolvencies have been dropping to an all-time low.
‘However, this perhaps isn’t the true picture, and things may change rapidly once the government support available through the furlough scheme is withdrawn, and more businesses are required to repay loans taken out as a result of the pandemic.’
He reiterated that many businesses are not yet out of the woods, and called on firms experiencing financial difficulties to seek immediate help.
‘Business owners cannot afford to lose sight of their current financial position, and they must take into consideration the challenges ahead as well.’ Tim concluded.
To find out more about Milsted Langdon’s insolvency and restructuring services, please visit www.milstedlangdon.co.uk