What do directors need to know
There are still local spikes here and there all over the UK and as we enter the traditional winter flu season, there might be temporary measures deployed if coronavirus cases rise sufficiently.
The government has also declined to implement planned vaccination passports for people attending large events in England so individuals and businesses could now begin to plan their Autumn activities with more certainty.
Against this backdrop it’s been confirmed that the various remaining pandemic support measures including the coronavirus job retention scheme or furlough will definitely end on September 30th along with a lifting of the ban on winding up petitions.
While it was expected that creditors would be able to seek winding up petitions once again, there’s been a sizable catch – so that now bringing a winding up petition is literally a £10,000 question.
New legislation to be introduced in parliament shortly will:
- Set a minimum debt threshold of £10,000 for a creditor to be able to seek a winding up petition
- Require creditors to seek proposals for payments from debtors first and give them 21 days to respond before any winding up process can continue
These measures will remain in place until March 31 2022.
Business Minister Lord Callanan said: “The time is right to lift the insolvency restrictions that were needed during the pandemic.
“At the same time, we know many smaller businesses are rebuilding their balance sheets and reserves, and some will need more time to get back on their feet. These new measures and protections will help them to do that.”
The minister said that businesses should pay their contractual rents where they’re able to do so and also confirmed that existing restrictions will remain in place on commercial landlords from pursuing winding up petitions against limited companies to repay commercial rent arrears built up during the pandemic.
Additionally commercial tenants will continue to be protected from eviction until March 31 2022 while a rent arbitration scheme to deal with commercial rent debts accrued during the pandemic is implemented.
One measure not time bound by restrictions are new legal powers given to the Insolvency Service which allow them to retrospectively investigate the conduct of directors of dissolved companies.
If they can prove that directors were dishonest or culpable in behaviour which led to their company’s failure then as well as being made personally liable for any debts incurred, they can be disqualified from acting as a director for up to 15 years.
This includes bounce back loans so obtaining professional advice is critical if you’re thinking of closing your business.
Why the threshold is important
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “The new £10,000 threshold for winding up petitions sounds like a big increase from the previous minimum level of £750.
“But in reality, due to the associated expense in issuing winding-up petitions, the vast majority of pre-COVID winding-up petitions were over the new level in any event.
“Eager creditors will examine their options carefully and look to use whatever leverage they have.
“Hopefully, many companies use the new 21 day period to negotiate sensible repayment plans. Seek expert help if in doubt about how best to approach this.
“Like the insolvency moratorium that’s automatically granted if a company goes into administration, this provides valuable breathing space and time for a business to come up with plans to deal with problematic debt.
“This includes outstanding bounce back loans or VAT arrears – they haven’t been suspended – and a business can still close down, even if a company has these debts but only if it’s done using the right method overseen by an insolvency professional.
“For example, If a business with unsustainable debt wanted to close and started the process in the next couple of weeks – it could probably be concluded before Christmas, leaving the directors or owners free to begin a new venture or career in 2022.”
Time is only an asset if it’s used effectively.
The 21-day negotiation period of winding up petition restrictions and £10,000 floor is only useful if you take advantage and get professional advice now because it will, like all the others, cease eventually.
We offer a free initial consultation to any business owner or director who wants to know the best way to close their company or if possible, restructure and keep it alive, even if it has debts.
Once we get a better understanding of the situation, we can come up with a tailored solution possibly with more options and choices than you thought you had.
But this is only possible if you use your agency and get in touch.