The Insolvency Service has signalled the end of temporary insolvency restrictions in England, Scotland and Wales from Friday 1^st October 2021. (Northern Ireland will follow with “similar legislation”). However, some protections for businesses facing insolvency will remain until at least 31^st March 2022, with new “targeted measures to support small business and commercial tenants” due to be introduced from next month.

Business Minister Lord Callanan believes “the time is right to lift the insolvency restrictions that were needed during the pandemic”, as “we are seeing life and the economy returning to normal with a strong rebound”.

What are the new insolvency restrictions?

Under the new legislation, winding up petitions will only be issued for debts of £10,000 or more – a significant increase on the £750 debt threshold pre-pandemic. However, this higher figure may be deceiving, as the £10,000 threshold doesn’t need to apply to a single debt, but can be the sum of multiple debts owed to 1 creditor or of debts owed to a group of creditors.

The second measure to be introduced will give debtor businesses 21 days to submit a payment proposal to creditors before the creditors can take winding up action.

In addition, the 16^th June announcement that commercial tenants will be protected from eviction until the end of March next year is being upheld. The Insolvency Service notes that “businesses should pay contractual rents where they are able to do so.” The extended protection is designed to stop commercial landlords from liquidation of limited companies to repay “arrears built up during the pandemic”.

The Insolvency Service expects these new measures “will particularly benefit high streets, and the hospitality and leisure sectors”.

Which insolvency restrictions are ending?

The measures which are ending include the suspension of serving statutory demands and wider-ranging restrictions on winding up petitions. The suspension of the wrongful trading rules, which temporarily removed the threat of personal liability from directors for wrongful trading, was lifted at the start of July 2021. All 3 of these temporary measures were put in place in June 2020, with the restrictions on statutory demands and winding up petitions applying to the period 1^st March 2020 to 30^th September 2021, as part of the Corporate Insolvency and Governance Act 2020.

The Act introduced some permanent measures, too, which will remain in place beyond the end of the month. These permanent measures centred on rescue and restructuring plans, and were in development before the Covid-19 pandemic.

What will be the impact of the changes?

On balance, October’s changes appear to benefit creditors, while affording some level of continued protection to the most vulnerable debtors – SMEs, high street business and those in the hospitality sector. How strong those protections are in practice remains to be seen, however, as the new £10,000 debt threshold for winding up petitions may not be high enough if creditors decide to group together to take action.

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