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Government set to end temporary insolvency measures

As UK economic activity continues to rise , signalling a return to normal trading conditions, the Government has announced, from 1st October, a phasing out of the temporary measures brought in to support businesses from insolvency throughout the pandemic.

The Corporate Insolvency and Governance Act 2020 has protected companies that were experiencing financial distress as a result of the pandemic, from creditor action since June of last year. This was to ensure that those viable businesses that had seen their trading severely restricted by the nationwide lockdown measures, were not forced into unnecessary insolvency.

With the phasing out announcement comes new measures that will be introduced to help smaller businesses steady themselves and trade towards financial stability before creditors can take action to wind them up. Hardest hit sectors of leisure and hospitality are seen to be most at risk without these appropriate new measures.

The new legislation will:

  1. See the current debt threshold for the issuing of a winding up petition temporarily increased to £10,000 or more, protecting businesses from creditors that insist on the repayment of relatively smaller debts.
  2. Require creditors to give debtor businesses 21 days to make payment proposals before a winding up petition may be presented.

These measures will be in force until 31 March 2022.

However, the restrictions on winding up petitions for commercial rent arrears will continue as previously intended by the Government in order to protect business tenants from eviction up to this agreed date. This is whilst it seeks to implement a rent arbitration scheme to deal with the vast amount of accrued commercial rent debt caused by the pandemic.

Although these measures are reflective of the further opening of the UK economy and will give businesses some welcomed short term certainty as they look to rebuild, the phasing out of the old protections could see a significant rise in reported insolvencies on businesses experiencing cashflow pressure within the coming months.

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